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Grand Committee

Thursday, 3 November 2011.

Arrangement of Business

Announcement

2 pm

The Deputy Chairman of Committees (Lord Brougham and Vaux): Good afternoon, my Lords. Welcome to the 10th day of the Committee on the Welfare Reform Bill. I have been asked to remind noble Lords to speak up a bit because the microphones are not what they are in the Moses Room. Please do not touch them.

Relevant document: 17th Report from the Delegated Powers Committee.

2 pm

"( ) In the case of joint claimants, regulations under this paragraph must specify that a particular amount of the earned income of a second earner should be disregarded."

Baroness Lister of Burtersett: My Lords, the purpose of the amendment is write into the Bill a requirement to provide an earnings disregard for second earners, the majority of whom are women. The Minister will no doubt say that this is not necessary because, as the Minister of State confirmed in the other place and the Minister here confirmed at our previous sitting, the Bill's regulation-making powers enable this or a future Government to introduce a disregard for second earners at a future date, if they so wish. I welcome that flexibility.

Nevertheless, there are important issues of principle here that need to be debated-not all of which were covered in our initial skirmish in the previous sitting. I once again apologise for the length of my remarks but there are important points to be made. However, the Minister can relax because I will not this time quote any e-mails from Conservative supporters.

The treatment of second earners is an important question that has caused concern among anti-poverty organisations such as Save the Children and women's organisations such as the Women's Budget Group that thinks that this is one of the most important issues in the Bill that affect women. I am grateful to members of the group, of which I am a member, for helping me to think through some of these issues. The treatment of second earners also threatens to undermine the Government's claims to be substantially improving work incentives. The Government have sent out rather mixed messages on incentives for second earners and we would welcome a clear statement of the position.

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I hope that having listened to the arguments the Minister might go a little further than what he said in our previous sitting.

It is true that second earners are now the only group whose earnings will be subject to the taper from the first pound when the disregard for the couple has been exhausted by the first earner. In a means-tested system based on the joint resources of a couple, some disincentive for second earners is inevitable, and I accept that this is a long-standing problem and is one reason why some of us would like there to be less reliance on means-testing. However, the problem is being made worse under universal credit, and the judicious use of disregards could mitigate it.

A second earner's disregard would enhance the architecture of universal credit by addressing the increased disincentive that most-not all, I acknowledge-second earners within the universal credit system will face. This is primarily because of the higher taper rate for those whose household income disqualifies them from housing benefit and council tax benefit under the present system. On top of that, those with childcare costs who are working more than 16 hours a week or more will, as a result of the reduction in the limit from 80 per cent to 70 per cent, have to pay more towards their childcare costs than previously. The reduction is already in force, although I welcome the fact that those working fewer than 16 hours a week will benefit from the extension of help with childcare costs. Because even small changes can tilt the balance of advantage of working for second earners, the introduction of a separate disregard for them could prove to be a cost-effective innovation.

Policy briefing note 5 analyses participation tax rates-or PTRs, which measure the incentive to enter paid work-and marginal deduction rates, or MDRs, which calculate how much of a small increase in earnings is lost through a combination of benefit withdrawal and taxation, and therefore measure the incentive to increase earnings once in paid work. In both cases, the lower the rate the higher the incentive. The briefing note shows that around 900,000 or three-quarters of potential second earners whose householders qualify for means-tested support under universal credit will face a lower incentive to take employment than under the current system, with an increase in their average PTR from 35 per cent to 65 per cent.

It appears that all the nearly 1.5 million existing second earners will see an increase in their PTR from 30 per cent to 45 per cent on average. The note concedes that this may reduce some existing second earners' incentive to work. Where this leads to a withdrawal from the labour market will presumably increase the amount paid out under universal credit. With regard to incentives to earn more when in work, approximately 300,000, or three-quarters, will face an increase in their MDR and, therefore, reduced incentives. According to a Written Answer in the other place, five out of six of these have children.

These calculations, and the worked example we have been given, take no account of childcare costs, although we are promised that these will be factored in at some future point-I trust before Report. Will the new calculations take account of the reduction from 80 per cent to 70 per cent on the debit side, as well as

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the extension to parents doing mini-jobs on the credit side? I suspect not, because this is one of the cuts already implemented, which can conveniently be ignored in impact statements.

Fortunately my colleague Donald Hirsch, of the Centre for Research in Social Policy, has done some calculations for the Resolution Foundation and Gingerbread which take account of the cut already made in support for childcare, as well as the policy announced recently. He has kindly allowed me to use them, even though I do not believe that they are yet in the public domain. One example illustrates well the nature of the disincentives faced by some second earners. He calls it the "hours trap". He gives the example of a parent with a low-paid partner. She takes a job at the minimum wage of £6.08 an hour for 16 hours a week to supplement the family income. In 2010, of the £97.28 she earned, she retained £46.19 after taking account of deductions and net childcare costs of £11.20. This represented a withdrawal rate of 53 per cent. Under universal credit, the much faster withdrawal of support for second earners, together with the recent cut in childcare support, means that much more of the extra income will be lost-she will retain only £17.25 of the £97.28, i.e. an 82 per cent withdrawal rate.

Admittedly, for those working fewer than 16 hours a week, an 82 per cent withdrawal rate is an improvement on the current situation, because of the extension of help with childcare-but, as Donald Hirsch observes, it is not an improvement that is likely to get many second earners out to work.

There are three main reasons why I believe we should do what we can to maximise work incentives for second earners. The first concerns the Government's own anti-child-poverty strategy. It is clear from the statistics that two-earner families with children are much less likely to be in poverty than single-earner families. Without a separate disregard, it will be very difficult for second earnings to fulfil their potential as a route out of poverty. The latest analysis of the official statistics by the Institute for Fiscal Studies shows that the child poverty rate after housing costs drops from 18.9 per cent in couples with one full-time worker to only 5.1 per cent in couples where there is also a part-time earner, and 2.1 per cent where there is a second full-time earner. Moreover, if we take a dynamic perspective, as Ministers encourage us to do, it underlines the potentially protective function that second earners can play in two main ways. If the first earner-usually, still, a man-loses his job, a partner's earnings can help the household cope while he looks for another job. When the mother is in paid work when living with a partner, she is better equipped to

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remain in the labour market should that relationship break down and should she then form a lone-parent family household-that family is then less likely to be in poverty. She is also better equipped to respond positively to the extension of conditionality to lone parents with young children. A second earner disregard could thus help achieve the Government's aim of reducing so-called welfare dependency among both two-parent and lone-parent families, because ultimately it offers a potential route out of universal credit as well as out of poverty.

Secondly, there is the question of implications for shared parenting, a Government goal articulated in their consultation on modern workplaces, which I very much welcome, even if its recommendations on parental leave look to be under threat according to recent newspaper reports. The equality impact assessment acknowledges that,

"it is possible that in some families, second earners may choose to reduce or rebalance their hours or leave work".

However, it reassures us:

"In these cases, the improved ability of the main earner to support his or her family will increase the options available for families to strike their preferred work/life balance".

This, it suggests, could be a "dynamic result" that improves family life.

It appears that what exponents of nudge like to call the architecture of choice is being tilted towards a more traditional male-breadwinner model, which may not necessarily reflect the preferred work-life balance of both members of a couple and could weaken women's labour market positions. According to the equality impact assessment, this traditional male-breadwinner model apparently improves family life. Indeed, at a Social Security Advisory Committee stakeholder event, held at around this time last year, I questioned the Secretary of State about this. He answered in terms that suggested he regarded a return to such a model as a good thing, although I accept that this may not be the Minister's view.

Moreover, I question the impact assessment's assertion, made in this context, that universal credit policy is gender-neutral. It states:

"Where men and women are in the same circumstances they are treated equally under Universal Credit".

We should hope so but in a gender-unequal world men and women are often not in the same circumstances in either the family or the labour market, so the effects of denying second earners a disregard are not gender-neutral. Therefore, I am not convinced that the Government are fulfilling their legal duty to promote gender equality here. Perhaps the Minister will tell us what advice the department has taken on this.

Thirdly, the Government nevertheless seem quite sanguine about the position of second earners as they consider any such risk of decreased work incentives to be justified. The Government are concerned only with incentives at the level of the household, rather than the individual. Indeed, they tend to conflate the two. In an Oral Answer in the other place, the Secretary of State stated that,

"universal credit will provide much better incentives for the first earner, giving a greater choice to the household about how it wishes to spread its income".-[Official Report, Commons, 28/3/11; col. 2.]

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This, together with the quotation that I read from the equality impact assessment is an example of what some economists called a unitary household perspective. It ignores the fact that couples are made up of two people and that the autonomy of each is important. Improving incentives for a first earner, even if on behalf of the couple, does not compensate for worsening them for a second. The choice of one partner is being enhanced at the expense of the other. In an earlier sitting, the Minister observed astutely:

"Effective choice exists only when the balance of power is equal between tenants and landlords".-[Official Report, 20/10/11; col. GC 169.]

The same is true within those households where an imbalance of power exists, often reflecting the economic power of each partner.

A study of BME maternal poverty conducted for Oxfam found that the women interviewed were keen to take paid work as it is the best way to improve their household finances. However, in addition to the usual barriers, such as childcare, some of them faced their husbands' attitudes. For the women who were in work, their jobs were an important source of self-esteem and independence, and they often had greater access to household resources than those without paid work. Although more traditional attitudes to gender roles might be more common in some BME households, they are not confined to them.

Consider the situation of a couple where the man is in low-paid work and receiving universal credit. He prefers his partner to be at home, looking after the house, the children and him. She would like a part-time job, perhaps to achieve a modicum of financial autonomy, to enjoy the sociality of paid work or to improve the household finances. Her bargaining position is not strong if taking paid work will reduce his universal credit and he can point out that her earnings will not bring much extra money into the household. If she could say that she and the household can keep a chunk of her earnings before they are affected by the taper, it would increase her bargaining power and make her choice to take paid work more effective, following the logic of the Minister's own argument about choice and power imbalances.

Finally, there appears to be something of a tension between the Government's apparent lack of concern about the reduced incentives faced by second earners and the treatment of this group in the new conditionality rules, which we have discussed. In particular, the in-work conditionality rules will require a couple to earn twice as much between them as a single person in order to escape sanctions. Yet if the first earner is unable to earn enough to do so alone, a second earner's wages could be the most viable means of complying.

In short, whether looking at it from the point of view of the universal credit architecture, the Government's child poverty strategy and its ambitions for shared parenting, or of financial autonomy for women and effective exercise of choice for them with regard to paid work, a second earner disregard represents a cost-effective enhancement to universal credit which, arguably, could eventually pay for itself. In a previous sitting, the Minister gave some costings for a second earner disregard. Are these gross or net costings? In

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other words, do they take account of the increased tax and national insurance and reduced universal credit payments that could flow from more second earners moving into paid work?

The Minister also said that this is a matter not of principle, but affordability. I hope that I have convinced him and the Committee that there are important principles at stake and that he will therefore go further than before in accepting the case that has been made in principle and assure the Committee that he would look favourably on such a disregard as and when the resources are available, taking into account the point about net and gross costs. I beg to move.

2.15 pm

Baroness Howe of Idlicote: My Lords, I congratulate the noble Baroness on the detailed and effective way in which she has presented the case for her amendment. I spoke firmly on the equality issue at Second Reading. I am most concerned about the extent to which the majority of second earners are women. Their very delicate position may be fine if they have a fully understanding husband, but we know that some families face situations that are far removed from this. I understand the point about mutual parenting, but if the Government put more emphasis on companies providing enough flexible working for both sexes, this situation would be much easier for families. My main concern is the vulnerability of the woman at home who, as we have heard, does not have a very good argument if she is not going to earn, as a result of her extra hours, enough to make any difference at all to the joint income. I therefore support what has been said.

Baroness Hayter of Kentish Town: My Lords, this amendment seeks to tackle the introduction, under UC, of a poor work incentive for second earners who, as the noble Baroness, Lady Howe, has said, are mostly women. As my noble friend Lady Lister said, 300,000 second earners will see increased marginal deduction rates as opposed to only one-third of those who will see reduced MDRs. The policy to make work pay does not appear to extend, therefore, to a third of these affected second earners. According to the impact assessment:

"It is possible that in some families, second earners may choose to reduce or rebalance their hours or to leave work. In these cases, the improved ability of the main earner to support his or her family will increase options available for families to strike their preferred work/life balance".

As my noble friend Lady Lister has said, it is not clear how this will improve options for families who prefer to have a more equal working relationship, where both partners combine work and child rearing. It also seems to be in conflict with other bits of coalition policy, such as the BIS modern workplace consultation, which sets out options for families to share parental leave more evenly between men and women. Perhaps, in responding, the Minister can let us know what discussions he has had with BIS about whether the incentives within universal credit support the BIS policy.

The reduced incentives for second earners to work come on the heels of the April cuts in childcare and therefore, as has been said, further reduce the incentive for anyone with a child to take a job, not to mention

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other little things such as cuts to the baby element of the child tax credit, the health in pregnancy grant, the Sure Start maternity grant and the freeze in child benefit.

As my noble friend Lady Lister said, the pay of second earners is crucial in keeping families out of poverty. If I may be forgiven for repeating her figures, which I hope I have right, child poverty is at 19 per cent where there is one full-time earner but it drops to 5 per cent with two earners and down to 2 per cent with two full-time earners. Therefore, second earnings are absolutely key to the Government's objective of reducing joblessness, child poverty, dependence on universal credit and increasing the tax take. I look forward to the Minister's answer to whether it was the gross cost after taking account of tax take which led to the projected cost of this.

Childcare has already been mentioned and is clearly particularly important in two sorts of families. One is obviously lone-parent families, and the other is where there is a second earner, with both parents tending to be out of the house at certain times. The disincentive to work increases where there are child costs to be met. As has already been said, childcare will cover only 70 per cent of costs, and that leaves 30 per cent to be found from earnings, which is already a high enough take from the second earner's pay. Therefore, without an earning disregard of their own, the second earner has a very high deduction rate where there are child costs to be met, effectively making the taking of a job financially unviable. Yet, as I have said, second earnings are crucial in keeping households out of poverty. They will be even more important if, as we read today in the Financial Times, there is any truth in the rumour that when times get tough it is the poor whom this Government will seek to make pay. According to these press reports, the Chancellor is looking at cutting further billions from benefits by scrapping inflation-linked uprates, even-this beggars belief-freezing some payments. We read in the same article:

"The Liberal Democrats will oppose anything that suggests the coalition is unfairly passing the burden of deficit reduction on to struggling families".

We look forward to hearing whether the Minister can say whether the Financial Times is accurate. Perhaps he can also ask those sitting alongside him-maybe they could pass him a note-whether they would like to place on record their opposition to any attempt to pass on any cutbacks to struggling families. They must know that the rich can pay far easier than the poor. Are they going to use their bargaining power, such as it is, in the coalition to protect the very weakest in society?

These amendments are about reducing poverty and increasing the take-up of work, and it would be useful to know on which side the Lib Dem/Tory coalition sits on this. Later today, we shall reach Amendment 75A to Clause 51 standing in the names of the noble Lords, Lord German, Lord Stoneham and Lord Kirkwood, and the noble Baroness, Lady Thomas, which effectively asks for an earnings disregard from the second earner where the first earner is now too ill to work. We very much welcome that amendment, but it would useful to know whether the same principle could be more widely adopted, as this amendment seeks to do.

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The Minister may well be forgiven for wanting to reduce the number of working women on this side of the Committee but perhaps he would make it clear that that is not the intention with universal credit by ensuring that second earners really will be better off in work.

Lord Freud: My Lords, I have enjoyed what we are calling the bevy of ladies on the other side. Their intellectual prowess has left me stunned on my heels. Let me go into this amendment, which proposes that we create a disregard for the second earner in a joint claim. This proposal was raised in Amendment 52DB, which we have already debated, so I am going to be reasonably brief.

First, this is not a matter of principle. We acknowledge that it would be desirable to incentivise both members of a couple to work. However, we have limited funding and we have chosen to focus that on creating a strong incentive for at least one member of each couple to work, in order to limit the number of workless households. This is clearly a difficult choice. We have discussed these choices, in response to the noble Baroness, Lady Lister, with other departments on a regular basis, and we are very aware of links to other programmes.

Clearly, this is something that, if we had some money, we could revisit at a future point, but let me give noble Lords the figures. If couples who were both in work were entitled to an additional disregard of £700 a year, for example, the cost would be £240 million.

Baroness Hollis of Heigham: Could the Minister be very detailed in his costings? When he says an additional £750-

Lord Freud: I said £700.

Baroness Hollis of Heigham: Is that as an addition to the second earner?

Lord Freud: There was a question around that, so I will endeavour to supply all the information I possibly can. A sum of £700 a year in addition would cost £240 million; if the disregard were £1,000 a year, the cost would be £350 million. We simply do not have the money in our present envelope. There is no real difference between gross and net in those figures because they are below the personal tax threshold, so there is no tax effect to set off. We are doing all sums on a non-dynamic basis anyway, so there is not a dynamic effect. From the point of view of the architects of the universal credit, we would have liked to incorporate more dynamic effects, but there are certain other interests in the Government that take a very straightforward view of money.

Let me deal with the other issue-that making the lack of a disregard for second earners makes the universal credit bad for women. That is the underlying argument here and clearly one that would concern us very greatly. But it is clearly not the case. Universal credit has many features that will improve the position of women, most obviously in support for mini-jobs

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and childcare. We have a duty, as the noble Baroness, Lady Lister, asked, to look at the impacts of policy changes on a range of particular groups, including the impact on men and women, and we are satisfied that our policy here is the right approach and that we can justify the impact. That is why I was able to sign the ECHR statement for this Bill.

Our impact assessments and equality impact assessments show that women in general are more likely to gain than to lose from universal credit, that this is also true for lone parents and couples with children and that lone parents benefit the most in both absolute and relative terms from the likely increase in take-up.

2.30 pm

In terms of work incentives, our analysis shows that female and male first earners in workless households have a similar pattern of PTRs under universal credit, but female first earners see a larger improvement as they have worse PTRs in the current system. Around 1.5 million existing second earners will see an increase in their PTR. However, the mean PTR for this group increases from 30 per cent to 45 per cent, which is still much lower than for many first earners and shows that there will still be considerable gains from work for most second earners. Around 900,000 potential second earners will face an increased PTR when considering work of 10 hours a week. In 83 per cent of cases this is because universal credit is providing more financial support to the couple than the current system. The PTR may be down but the overall financial support is up. Under universal credit, the distribution of MDRs for men and women are fairly similar. Women are more likely to face lower MDRs than men, both now and in the future, but this is partly to do with the fact they are more likely to be working part time and are below the tax and national insurance threshold.

The second earners issue is therefore part of a much bigger picture that, overall, is very helpful to women. I add only that the Institute for Fiscal Studies has pointed out that the trade-off between first and second earners is similar to that faced by the previous Government when they introduced working families tax credit in 1999. That also strengthened the incentive for couples to have one partner in work and reduced the incentive for both to take employment. I hope this explanation will allow the noble Lord to withdraw Amendment 52C.

Baroness Hollis of Heigham: My Lords, I deliberately did not follow my noble friend after such a full, strong and powerful speech; however, my name is also on the amendment. I appreciate the dilemma that the Minister is in: there is a cash constraint and he is making policy choices. The last thing I would wish to see is a diminution in the earnings disregard for the first earner in order to vire it across to a second earner because you are trying to see which poor people would be most hurt in that situation. It is a dilemma and I would not wish to go down that road.

The Minister is right to say that under universal credit the position of women improves for the most part. However, the position of partnered women does not. The distinction my noble friend was drawing was about the situation of partnered women, not women

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overall. All the moves between in-work and out-of-work benefits, the 16 hours and the extra disregards for lone parents are welcomed, but we are now talking about partnered women and much of the noble Lord's response dealt with questions that we did not raise.

Let me refer the Minister to page 6 of his own document. This is what happens if Bhavna also starts work for 10 hours a week at the national minimum wage of £6 an hour: she brings in an income of just over £60 a week, and the household has a net gain of just over £20 a week. So she earns £60 and the two specific examples given by the Minister show that she has a gain of £20. As my noble friend emphasised repeatedly, this excludes any childcare costs. I have been doing some sums. If her children are not of school age and she is using a child minder at £2.40 an hour per child-which she may well do-and allowing an hour for travel at each end of the 10 hours that she is working part time over the course of two days, I reckon that, out of that £20 gain-her 30 per cent-her childcare costs would take up £19. So she is left with £1, out of which she has to pay her travel costs, let alone extras such as lunches, food at work, different clothes and so on. Some £19 of that £20 could go on the existing childcare costs, leaving £1 for travel-in other words, she would be out of pocket if she worked. That is based on the Minister's own figures, and that is what concerns us.

My noble friend was surely spot on when she said that to have a second earner in the family is protective of all family forms. This is what matters; it protects the existing family. We know a larger family will still remain below the poverty line on minimum wage unless you have a second earner in play-and it is the second earner who takes a working family out of poverty. It protects the family and it also protects the woman, should anything happen to her in future.

While I accept the fact that the Minister is up against cost ceilings-I certainly do not wish him to stop viring earnings disregards between the two members of the family-it would help the Committee if he was able to give an undertaking that this will be a priority and that any additional resource would be aimed towards readdressing the issue of the earnings disregard for the second earner. Believe me, all the gains that he is offering, in terms of mini-jobs and so on, are going to be wiped out because of the tougher treatment of childcare costs and the fact that, as a result, it will not be worth your working, even though the Government claim it is.

Baroness Sherlock: My Lords, I want to save the Minister getting up twice, as I want to ask him a question on a similar point. I have been trying to wrestle with some of the briefing that has come in on this issue. Can he answer two simple questions? Is it possible for somebody to face MDRs of higher than 100 per cent if they are, for example, a second earner with childcare costs? Secondly, if somebody would actually be worse off in work, would they still be sanctioned for failing to do it?

Lord Beecham: My Lords, may I ask what I hope is a final question? The Minister rightly referred to the fact that there would be no income tax income to the

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Treasury to offset the cost. However, has the Minister considered the likelihood of much of the income of a second earner being spent in a way which would incur VAT? Is that not a material consideration in terms of what would be offset against the cost?

Baroness Hayter of Kentish Town: Before the Minister stands up, as I think he might like to get everything together, there were two questions posed that he did not respond to. One was whether he had had discussions with BIS. I had also given him the opportunity to refute the story in the Financial Times. I hope he might use this moment to do that.

Lord Freud: My Lords, let me try to pick up some of those points. Picking up the point of the noble Baroness, Lady Hollis, I hope that she is hearing that I am sympathetic to this point. I hope that noble Lords have heard that this is about money. We do not have this money. We have a very sharp choice to make, about whether to reduce workless households or to look after second earners with a disregard. We have taken this decision, and we have also taken a decision, when we do find some more money, to do something about childcare, which is another issue that I know greatly concerns noble Lords.

There are two clear issues when we look to improve this system, as we see dynamic effects coming through which are provable. We had a debate the other day on why we need to test things. Two of the obvious things to test will be second earner disregards and taper. Those are the first two things that everyone in this Room, I think, would like to know about as we get the system under way. Therefore, to the extent to which I am being asked "Will we look at it?", yes, we will be looking at this. I am not going to make any assurances, because we should find the answers, but that is exactly the kind of question we want to have answered.

I shall take up the points of the noble Baroness, Lady Sherlock, on MDRs. You can freight all kinds of things on to MDRs if you want to, with different costs, and I am sure that you can create a position where the overall costs come up to high MDRs. The simple point that I would like to make is that with the universal credit itself, the MDRs come down.

On whether we will force people to take a job which leaves the household poorer, we made the point when we discussed this that we take these things into account when we set up the obligations of claimants.

Baroness Sherlock: My Lords, I am grateful to the Minister. I hear very clearly his sympathy for this issue. If it is simply a question of money and therefore timing, one of the things he could do, to put everyone's minds at ease, is to say, "Until we can afford it, we will not force a household to be worse off by forcing them into work or sanctioning them". He could then review the situation when he found the money down the back of the sofa next time.

Lord Freud: I will not give that kind of assurance to noble Lords. This is clearly-

Baroness Hollis of Heigham: You could, you know.

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Lord Freud: Stop teasing me. The noble Lord, Lord Beecham, made the point about VAT; there is clearly a missing element there, and I acknowledge that there is a difference between the gross and the net.

I thought I had answered the point made by the noble Baroness, Lady Hayter, on talking to other departments. Yes, we are talking to BIS. As to the FT story: as you would expect me to say-it is something between, "Pick the normal stuff", "I do not comment on press articles" and, "It is a matter for the uprating Statement". Pick any one of those you want. I am not answering the question. [Laughter.]

Baroness Hollis of Heigham: I congratulate the Minister on his nimble footwork; it was very impressive. However, what happens to Bhavna in this situation, where her childcare completely mops up £19 out of her £20 addition to the family earnings?

Lord Freud: In this example, there is a 65 per cent taper. Thereby, extra earnings produce an increased income of about £20. The effect of childcare costs would depend on the amount of the childcare costs. Under our current proposals, the parent is clearly expected to meet 70 per cent of allowable costs, and the state will cover the rest.

Baroness Hollis of Heigham: I understand that. I thought that that was exactly the point I made. The question was regarding the result of that calculation. She earns £60 and adds £20 net after universal credit, and £19 of that will, on any reasonable estimate, go on her share of childcare costs. That is before you take travel costs into account. Why work?

Lord Freud: We are going round in circles. We all know the point that is being made. We all know the reality of the iron triangle. We are wrestling with it. This is what we can afford to do right now. Some people may be caught in such a position and we make the point that some people will have higher MDRs-a lot will not. As we improve the position when we have funding, and have proof of the dynamic benefits that may free up main funding, we will be able to apply them. However, this is the best we can do right now. I would love to do more, but I cannot find any more money.

Baroness Lister of Burtersett: My Lords, I thank noble Lords who have supported the amendment with some helpful additions to the argument. I do not know whether any other noble Lords spotted it, but the Minister asked the "noble Lord" to withdraw the amendment. I do not know if he was making a Freudian slip and trying to reduce the bevy of Baronesses opposite him.

I should like to make a couple of more critical points before I come to a more positive one. I can understand the Minister's frustrations that there are other parts of government that will not allow the department to do its calculations on a dynamic basis, but I was a bit disappointed that the department's thinking was not dynamic in relation to this matter and it was not prepared to acknowledge that there

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could actually be positive dynamic effects through a second-earner disregard-whether they be anti-poverty or paid work effects, and all the things that the department is in favour of. I do not know whether these are just the noble Lord's own arguments or those that are simply in the brief that comes from the various documents we have been given, but it seemed to me that there was still the unitary-household approach and an inability to understand that while couples are couples, they are also individuals within couples. I ask the noble Lord to go away and think about that a bit more and about the importance of individual autonomy within the context of coupledom. I would have been even happier if he had been able to go one step further and commit himself on the second-earner disregard in the longer term.

We have, however, made progress today. What the Minister has said takes us beyond some of the other things which have been said. I now take it as the official departmental view that it will, in the fullness of time, consider improving incentives for second earners, either through a second disregard or through the taper, as and when resources permit. I therefore beg leave to withdraw the amendment.

Amendment 52C withdrawn.

2.45 pm

Amendment 52D

Moved by Baroness Drake

52D: Schedule 1, page 107, line 26, at end insert-

"( ) Regulations may specify that the pension contributions of single or either of joint claimants are to be disregarded in calculating their income."

Baroness Drake: My Lords, the purpose of this amendment is to allow regulations to specify that pension contributions made by single or either of joint claimants are disregarded in full in calculating their income for the purposes of calculating entitlement to universal credit: in effect, that 100 per cent of contributions made to an Inland Revenue approved pension are deducted from earnings that are brought to account in the calculation. The current tax credit rules disregard the whole of any pension contribution, and housing benefit takes half of that contribution into account.

Briefing note 3, which I read again this morning, states that only 50 per cent of pension contributions will be deducted from income under universal credit. I find this decision to allow only 50 per cent of pension contribution to be deducted-as against the current 100 per cent-quite disturbing when we are on the eve of beginning to auto-enrol millions of people into a workplace pension, many of whom will be modest-income earners and many of whom will be in receipt of universal credit. I find it disturbing for three reasons. First, it will undermine the incentive to save-I will come back to this. Secondly, it will impact those on lower incomes. Thirdly-and this is an argument to which I will return on another occasion-it is another example of a government policy measure, of which there have been several over a short period, which results in little or no asset accumulation strategy for low to moderate income earners.

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The arguments for auto-enrolment and the 8 per cent base load of contribution included an analysis of financial incentives to save. It included the fact that this 100 per cent of contributions was allowed in the deduction under working tax credit. That analysis was carried out in three instances: once by the Pensions Commission-we were aware of it and it influenced our thinking-and twice by the DWP in its research report 403 Financial Incentives to Save for Retirement, and its report on the savings incentive work programme. The latter report was a very high-profile event; it was carried out in a rather heated environment around incentives to save and means-tested traps. The DWP was full and transparent in its engagement with all relevant stakeholders, sharing data and analysis. The report was widely accepted at the time. In all of these reports it was clear that the way in which pension contributions were treated under the tax credit system was part of the incentive to save and the payback analysis on every pound saved for low to moderate-income earners.

I cannot do justice to the reports in moving an amendment, but I refer to one or two selected examples. Looking at £1 of saving by a low earner under current benefit and tax credit rules, paragraph 4.5 of the DWP Research Report 403 advises;

"the expected payback for a low earner per £1 contribution net of any offsetting benefit effect is £2.81, compared to £2.52 with no such offset".

The same paragraph, in brief, goes on to illustrate, admittedly for a very stylised individual, how receipt of working tax credit throughout working life by someone on a lower level of income can increase the return on their savings to 4.1 per cent from 3.2 per cent after all the effects of these offsets. Even if tax credits are received only at certain points and not throughout the whole working life, they still boost the net return on savings. If one were to take the difference between 3.2 per cent and 4.1 per cent and express it in terms of a percentage difference in a rate of return over 30 to 40 years, what would that mean? It would mean a pension pot of the order of 20 per cent or perhaps 25 per cent less than it would otherwise be.

Then we come to those on the lowest incomes who are hit hardest. I come back to a point that I made in a previous amendment about the purpose of the tax credit, which was to make work pay. It made it easier for people to get a real return from being in work and accept responsibility. This is very important to those on lower incomes. Clearly, a very strong incentive to save will be lost by changing the rules on pension credit and, inevitably, it is going to trail through to a gender dimension. I always get very stressed when I look at these things in terms of the gender impact.

Referring back to Appendix D of the DWP report on the savings incentive work programme, again this shows that those on modest incomes in receipt of tax credits and housing benefit effectively pay 52p for an individual contribution of £1, which, with the employer match, means that £2 is contributed to their pension. That clearly enhances the payback from saving for these individuals. I know that there will be instances where some people whose incomes are below the earnings limit at which withdrawal begins will not get that

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benefit. None the less, for significant numbers of people- and that number will increase in an auto-enrolled world-under the current arrangements the payback would be much higher by allowing the 100 per cent.

I come on to the broader point. It is very easy to look at a piece of policy incrementally and say, "We have to make difficult choices. We can do this and save that", but I am always really concerned when I see a series of incremental policy decisions. When you look at their cumulative effect, they are quite exponential in their impact and much greater than the people who made the individual incremental decisions thought they would be. This is almost disassembling asset accumulation strategy. Policies focused on improving the benefits system and policies directed at asset-building by lower income groups are not alternatives. I get a feeling that there is a debate that says that they are. Certainly when I participated in the debate that led to the scrapping of the savings gateway, that was the debate that was running at that time.

It is not a matter of either/or; you address the low income policy and income redistribution or you address the asset accumulation strategy, but recognising that addressing inequality and enabling people to take responsibility, stay in control and be empowered, and everything that we aspire to for people to achieve, have and be, requires both sets of policies. Yet we see in this Bill and elsewhere other measures by the Government that have the effect of disassembling asset accumulation strategies. We have the one that I am talking about, where the amount of pension contribution deductions that can be made is now to be halved. We saw the removal of the savings gateway. We are seeing the application of quite aggressive capital rules to the savings of those in work under universal credit. We are seeing the application of aggressive capital rules where one partner has reached pension credit age and the other has not. We have seen the aggressive taking into account of ISAs and assumptions about income flow from ISAs, which were a product that was supposed to be targeted at lower to moderate-income earners. It was a high-advantage, simple, cash savings product.

Therefore, when one stands back, I have a general concern about the impact of a series of measures on the asset accumulation strategy for people on low-to-moderate incomes. I honestly do not know how one expects people to embrace responsibility and long-term saving, and think about preparing for retirement, when one of the significant things that contributed to the payback on your savings, apart from the employer contribution, was the way in which your pension contribution interfaced with the benefits system. It is unfair and it is certainly inefficient as a piece of policy, either as pension policy or in helping people to exercise more control and responsibility.

May I also ask about some operational issues that flow from this? It is not clear how personal pensions that are not paid through the employer will be handled when someone says, "I am not engaged in the auto-enrolment arrangements with the employer but I am paying into a personal pension, so how do I get account taken of that?". Secondly, it strikes me that this will be quite a complicated procedure. If someone is on universal credit and paying a contribution, only

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50 per cent of which is taken into account, you cannot take the gross earnings figure and you cannot take the net earnings figure because the Inland Revenue would have given a more generous allowance for that pension contribution. Therefore, you have to create another figure for the 50 per cent allowance that you are going to give on pension contributions. It just struck me as a rather complicated calculation or procedure, so I should like to understand how that will be done. I also dislike and disagree with the intention to reduce it from 100 per cent to 50 per cent. I beg to move.

Lord McKenzie of Luton: My Lords, I do not want to add anything to the very full argument around the policy that my noble friend has laid out. I just re-emphasise the issues about the practicalities and how they will work. I understand that employer contributions will not be treated as income for universal credit purposes but only 50 per cent of the employee contribution will be deductible. As my noble friend says, the data that come from the system would be net of tax, net of national insurance and net of occupational pension contributions, not the full contribution. Therefore, some adjustment would have to be made to that. How does that sit with the collection through real-time income and the related point that my noble friend made about when those contributions are made directly to personal pensions? Presumably there will need to be some additional reporting requirement. I guess this just emphasises that, in the world of universal credit, all is not as simple as we would wish and sometimes portray.

3 pm

Lord Freud: My Lords, Amendment 52D would take a power to disregard the full amount of any pension contributions from the assessment of both single and joint claimants' income. In the universal credit White Paper, we set out our intention to disregard 50 per cent of contributions to an occupational private pension from the income assessment. This balances our commitment to encourage pension saving with fairness to the taxpayer and it is the current treatment in the benefits system. It is true that in tax credits 100 per cent of pension contributions are ignored, but tax credits are based on gross income. This is not therefore directly comparable with the 50 per cent disregard in the benefits system.

In addition to the disregard, universal credit claimants will also have tax relief on their pension contributions. This means that for each pound that goes into the pension pot of an employee who is a basic rate taxpayer and in receipt of universal credit, the take-home income is reduced by only 34 pence after minimum employer contributions, tax relief and increased universal credit payments are taken into account. It would cost approximately an additional £200 million a year to move from 50 per cent to a full disregard. While this would no doubt be welcomed by claimants on low incomes, not all taxpayers who do not claim benefits have the advantage of a private or occupational pension. We must therefore take a balanced approach to the disregard of pension contributions, and we believe that 50 per cent is the appropriate level.

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Pension contributions are disregarded from the income assessment in tax credits. We have taken the view that this is one of several areas in which tax credits have been excessively generous to claimants when the position of the average taxpayer is taken into account.

On the operational point, we are already operating a 50 per cent disregard, including a payment towards personal pensions. The rules will operate in a similar way to the way that they do now, but clearly we will not be able to do all this through RTI, so there will need to be some direct reporting.

Picking up the point that the noble Baroness, Lady Drake, made about what we are doing for asset accumulation, I can point to a series of measures that the Government are taking in that area, not least the support being provided to lower-income houses to purchase a home. In universal credit, households are able to save up to £6,000 with no impact on the universal credit award. I should point out that an average household with a working-age adult has average savings of £300.

The convention is that "two Baronesses" makes "noble Lords". If I made a mistake during debate on the previous amendment, I was possibly slurring my "s". In this case, I can ask the noble Baroness to withdraw her amendment.

Baroness Hollis of Heigham: I was slightly taken aback by the Minister saying that he thought 100 per cent disregards in tax credits were regarded as overgenerous, when at the same time no mention is made of what we are paying in higher-rate tax relief. Currently, out of the £26 billion we spend on tax relief, some £8 billion to £10 billion is going to higher-rate tax relief. If we follow the Minister's line, apparently we need only to incentivise the rich to save; the poor are being overincentivised and we are being overgenerous.

Lord Freud: My Lords, I think I am caught being slightly puzzled. I was strongly under the impression that pensions were removed from the higher rates of tax relief. I hope I am not wrong on that.

Baroness Hollis of Heigham: The noble Lord is wrong.

Lord Freud: On that basis, I am probably the wrong person to interrogate on this matter.

Baroness Hollis of Heigham: There is a limit on how much of your pot can attract higher-rate tax rates, which is the £50,000 figure. There have been some changes, but £50,000 of pension contributions is still tax free.

Lord Freud: I think we are now into the realms of minutiae. This has been subject to a substantial change. It was unlimited. Noble Lords can see that my personal interest in this is not as great as it might be. One can make comparisons and political points all over the place; let us stay with the business in hand.

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Lord McKenzie of Luton: Can the Minister help us on one point? I am interested in the practicalities and operation. He said that we could not do all this through the RTI system. I am trying to understand how much of it can be done, given that the RTI system is going to produce either a gross income figure or a net of tax and national insurance figure.

Lord Freud: My Lords, we had a session earlier today trying to go through what the universal credit shows. Without being overprecise, a lot more information is available but effectively you need the net and the gross figures. Clearly, the personal pensions are not captured on that payslip, but the pension contributions through auto-enrolment, for example, would be captured.

Lord McKenzie of Luton: I accept that you might have the net and the gross figures, but do you not now need another figure, which is half the occupational pension payment? That is not readily thrown up in the pay-as-you-earn system or any other system.

Lord Freud: Yes, we have commissioned that as part of the requirements.

Baroness Drake: I appreciate that the Minister has to give the Government's reasoning behind this decision, but I am absolutely aghast at the argument that it will cost £200 million to restore 50 to 100 per cent of the pension contributions being deducted. There was a pension settlement, which said that the state pension age had to go up but the earnings-related element would be removed from the state system and go flat rate, and that individuals, supported by their employer, would have to take on greater responsibility for personal saving. They would be auto-enrolled, and that was part of them taking responsibility for a sustainable pension system over the long term. As part of that, the incentive to save had to be right; that was a huge debate. In the third leg, between the state pension age going up, flat-rating the state system and moving private savings up and earnings-related out of the state system, the incentive to save had to be right.

At the time, there was a huge debate and a huge argument that it would not work unless you got the incentives to save right. At the lower end, how the benefit system interfaced with the pensions savings system was a very important part of the payback. It was also a very important part of the explanation to people-including shadow Conservative Ministers at the time, who were very vocal on this issue-that this was what the payback would look like, with incentivisations to saving that came through the tax credit system. This is what I mean about incremental decisions. Now somebody says, "Well, we can just remove a chunk of the payback for a particular group of people and save £200 million by reducing the figure from 100 to 50 per cent". I really struggle with that because it is saying, "Never mind what the strategic analysis was or where we are trying to go; this convenient incremental policy will save us £200 million"-and somehow it is a fairer deal for the taxpayer. Maybe in 30 years' time it will not be a fairer deal for the taxpayer if more people present themselves for benefits.

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I struggle with that line of reasoning for doing this for that group of people. Okay, it is £200 million. I am not avoiding the need to make tough decisions, but again one stands back and looks at the contribution that the taxpayer makes to the incentive to save across the piece.

My noble friend Lady Hollis is right. You can get £50,000 per annum incentivised right up to 50 per cent tax relief. I know that the noble Lord is going to shout at me that this will allow more people to keep their income and that it is a different analysis, but I do not accept that, particularly in the context of a sustainable pension strategy. We have all sorts of tax advantage savings arrangements that the well-off can take advantage of. You can fund a tax advantage stakeholder account for your child. You can fund a tax advantage ISA for your child or your non-waged spouse. I have taken advantage of some of these for my children. However, I struggle against the decisions on the incentive to save for low-to-moderate-income groups, which was inextricably linked to the in-work benefit system, when somebody says, "It saves £200 million. Just undermine the incentive to save and the payback for this arrangement". It just does not stack up intellectually. It does not stack up when there is a consensus which says that everyone should buy into a pension solution that holds over the very long term. We have just taken £10 billion from a group of women who should not be bearing that level of savings, and we are now going to take £200 million out of low-to-moderate-income earners. My argument is losing subtlety because the quality of what I am pushing back on is unsustainable. It is £200 million for an irrational reason. Extremely reluctantly, I beg leave to withdraw the amendment, although I am sure I shall be coming back to this.

Amendment 52D withdrawn.

Amendment 52DA

Moved by Baroness Thomas of Winchester

52DA: Schedule 1, page 107, line 26, at end insert-

"( ) For the purposes of introducing Regulations under this section -

(a) earnings shall not include any payment in respect of expenses wholly, exclusively and necessarily incurred in the performance of the duties of the employment.

(b) notional income shall not apply in respect of any amount of income other than earnings, or earnings derived from employment as an employed earner, arising out of the claimant's participation in a service user group;

(c) "service user group" means a group of individuals that is consulted by or on behalf of-

(i) a Health Board, Special Health Board or the Agency in consequence of a function under section 2B of the National Health Service (Scotland) Act 1978;

(ii) a landlord authority in consequence of a function under section 105 of the Housing Act 1985;

(iii) a public authority in consequence of a function under section 49A of the Disability Discrimination Act 1995;

(iv) a best value authority in consequence of a function under section 3 of the Local Government Act 1999;

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(v) a local authority landlord or registered social landlord in consequence of a function under section 53 of the Housing (Scotland) Act 2001;

(vi) a relevant English body or a relevant Welsh body in consequence of a function under section 242 of the National Health Service Act 2006;

(vii) a Local Health Board in consequence of a function under section 183 of the National Health Service (Wales) Act 2006;

(viii) the Commission or the Office of the Health Professions Adjudicator in consequence of a function under sections 4, 5 or 108 of the Health and Social Care Act 2008;

(ix) the regulator or a registered provider in consequence of a function under sections 98, 193 or 196 of the Housing and Regeneration Act 2008;

(x) the National Institute for Health Research and Department of Health commissioning programmes;

(xi) the National Institute for Health infrastructure organisations including research networks, Research Design Services, Collaborations for Leadership and Applied Health Research and Care, University Research Institutes and groups and other higher education institutions, individual research studies, social care bodies, charities and other not for profit organisations; or

(xii) a public or local authority in Great Britain in consequence of a function conferred under any other enactment for the purposes of monitoring and advising on a policy of that body or authority which affects or may affect persons in the group or monitoring or advising on services provided by that body or authority which are used (or may potentially be used) by those persons."

Baroness Thomas of Winchester: My Lords, the wording of my amendment is taken straight from Statutory Instrument 2678, the Social Security Benefit (Computation of Earnings) Regulations 2009, with the additions of subsections 10 and 11. The reason I have copied the wording of this SI will become clear in a moment.

Old welfare reform hands may find my speech strangely familiar because I have been on this particular soap box since 2006. The amendment is about the way benefits are treated for service user involvement, specifically the unresolved problem of those disabled people on benefits who help with NHS research, public health research and social care research. The unresolved problem is the impact on their benefits of out-of-pocket expenses and, possibly, a small emolument paid by the organising body. Disabled people are asked to take part in research studies in these fields not just as subjects but as active partners in the research process. For many severely disabled people, this activity is the most important thing that they do, as they are uniquely placed to take part and they know that their participation may lead to better outcomes, both in the immediate future and for future generations.

Plans set out in the health Bill require clinical commissioning groups to base decision-making on evidence-based research. However, unless the universal credit rule on the treatment of certain reimbursed expenses as earnings is amended and the application of the notional earnings rule is removed, disabled people on benefits will continue to be prevented from offering their assistance. Research in health and social care will be used to commission our future healthcare

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but, as matters stand, two nonsensical bits of red tape in the benefits system will prevent the involvement of many patients. The two obstructive benefit rules were designed for employment and are entirely inappropriate for involvement. The first is the treatment of reimbursed expenses for involvement in research.

At this point, I should define what I mean by research. I am not talking about patients who are entered into clinical trials as part of their treatment. I am talking about those who, in the words of the relevant HMRC circular, are,

"invited to attend meetings to give their views on various matters to inform the research process and direction".

Where people are paid a small fee for their help with this research and their expenses are reimbursed by the organising body, both amounts are totalled and treated as earnings. Where the total is above the benefit-earnings disregard, the excess is deducted from their benefits. This is because, as I said, the reimbursement of out-of-pocket expenses is treated as earnings. People may end up with less money the following week or with no money at all for living costs for several weeks. If this happens, they promptly and understandably withdraw their help.

3.15 pm

My noble friend the Minister has expressed his belief that the earnings disregard for universal credit will represent an improvement on the current earnings disregard for people on ESA and IB, and that this improvement will resolve the problems that I am raising. However, the earnings disregard for the great majority of people who will receive UC for health reasons-that is, disabled claimants-is to be just £40 a week. This is a great deal less than the current earnings disregard of £97.50 a week for those with the most severe health conditions on ESA or IB. It is still less than the earnings disregard for others who are entitled to £97.50 for one year, alternating to £20 the next.

Where people who are asked for their involvement in developing public policy have a disability or restrictive health condition, they may require the help of a personal assistant with travelling and personal matters, accessible accommodation overnight or specialist equipment. All these costs are significant and much more than the £40 a week earnings disregard.

Under current benefit rules, where the participation is in NHS or social care research, all reimbursed travel costs are treated wholly as earnings. There is a benefit-earnings disregard limit on their earnings, as I have already said. The small fee for their time and the travel costs are totalled and treated together as earnings. Any excess of the total sum above the earnings disregard leads to the person's benefit being reduced or stopped entirely. In the future, 65 per cent of the excess will be deducted from universal credit. One example is that of a wheelchair-user with high support needs travelling from Leeds to London. His travel expenses and those of his personal assistant come to £240. The personal assistant costs for two days come to £380. Overnight accommodation in a fully accessible room comes to £315. Specialist equipment hire comes to a further £235. This person would lose all his benefits for living costs for at least one week and possibly for

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four weeks as a result of participating in research for the benefit of the public. This is clearly unjust and irrational.

Universal Credit Policy Briefing Note 9 on the treatment of income other than earnings, which was published recently, seems to offer some hope that certain out-of-pocket reimbursed expenses may be ignored in some circumstances but it is unclear. The briefing note does not refer to the reimbursed cost of travel. It does not differentiate between the circumstances of employment and the circumstances of involvement. It does not refer to any plans to disregard the cost of travel to the place of involvement. There is a long-standing rule about travel costs, which is based on employment. For an employee, any reimbursement of travel costs between home and work that is provided by the employer is traditionally treated as earnings by both the DWP and HMRC. However, involvement is not the same as employment because it may be for one day or a few hours in the month. A person who is involved in helping with health and social care improvement does not have a wage, just a one-off small fee. The strict limit on earnings for people on benefits means that the fee is not likely to be sufficient to cover travel costs.

The universal credit briefing note indicates that while child benefit may continue to be disregarded as income, other reimbursed expenses may be treated as earnings and will lead to the 65p in the pound reduction of UC. Expenses that are reimbursed to an employee by an employer, such as those of a replacement carer or child carer, have been traditionally treated partly or wholly as earnings by DWP and HMRC. It is clearly inappropriate to treat a reimbursement of the occasional but substantial costs of a personal assistant or a replacement carer or child carer for a participant in research as earnings for universal credit. However, perhaps the Universal Credit Policy Briefing No 9 offers a window for further clarification around reimbursements for involvement. I would be grateful if my noble friend could shed some light on this.

The second obstructive benefit rule that has been designed for employment, but which is entirely inappropriate for involvement, is known as the notional earnings rule. The outrageous matter of notional earnings means that if a person declines to take a small fee because the amount offered is above the earnings disregard, they will be treated as though they had taken the fee and they are likely to be out of pocket as a result of helping with NHS research as a volunteer and are not likely to repeat the experience.

As matters stand, there is no commitment to carrying over the legislation introduced by way of SI 2678, the Social Security Benefit (Computation of Earnings) Regulations 2009 laid before this House in December 2009 by the noble Lord, Lord McKenzie, which, to great rejoicing, removed these two significant barriers to involvement by allowing expenses to be disregarded when benefit entitlement calculations were made and by removing the application of the notional earnings rule. These changes were relevant only to those whose involvement was in the field of health and social care services and not in research. We were disappointed to learn that this new and welcome change in the legislation applied only where the involvement was required by

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law, and so the entire NHS research programme had been omitted. The benefit changes apply to involvement with local authorities, landlord authorities, NHS trusts and health boards. They do not apply to involvement with the work of the National Institute for Health Research, public health and social care research.

Will this amendment cost the DWP money? No, because all we are asking is for a disabled person's benefits to be undisturbed by their participation in NHS research, public health and social care research.

I understand that my noble friend is willing to have a meeting to see whether we can sort out this complex matter. It may therefore help the Committee if we hear from my noble friend at an early stage.

I end with a quote from a cancer patient who last year was asked to participate in a patient research panel, which he did for a time. He said:

"My deteriorating health means I need to step down from the PRP, but this will not be the case for many people who could be contributing to research panels if only these DWP restrictions did not prevent them. What a waste of patients' and carers' knowledge and experience. Many of us are severely debilitated after cancer treatments and cannot do regular work, but we can contribute something as and when we feel able and it surely keeps us sane-saving money on mental health services. As human beings, we still need to be useful, but the DWP expect us to sit and vegetate".

We must not lose this golden opportunity to put this matter right once and for all. I beg to move.

Baroness Wilkins: My Lords, I support the amendment which has been so comprehensively introduced by the noble Baroness, Lady Thomas of Winchester. I wish to make one additional point, which is that one of the very dispiriting elements of having a long-term health condition or a disability is the fact that you are so often on the receiving end of help. It can almost get to the point where you are not expected to be able to do things for other people. For example, I very rarely get leafleted in the street by charity workers. If I go to the door to a charity worker, they apologise that they have bothered me. It is as if you are not expected to be able to contribute to society in any way. However, one very obvious way in which we can contribute is by sharing the experience of our condition, making some value out of it and aiding research in this way. That can surely only be beneficial for future generations, for medical professionals and for ourselves and our self-esteem. It seems nonsensical that red tape in the benefits system should stand in the way.

Lord McKenzie of Luton: My Lords, I support the thrust of the noble Baroness's amendment. I do not think that there was much that I ever did as Minister which was the cause of great rejoicing, but I was grateful for at least one memory. I recall several meetings that we had together, trying to see that we ended up in a situation where amounts paid to service users did not inadvertently affect their benefits. I have been trying to recall all of the detail of that. I am not sure that I can, but I am sure that the Minister will be able to bring us up to date or remind us.

Part of what we were trying to do then was to see if a sensible application of the current rules, by way of clear guidance across Jobcentre Plus, would be a route

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to tackling it. It was in part, but it did not deal with the whole of the situation. There can be no doubt that engagement of those who actually use our services in shaping how they are organised and delivered can be of enormous public benefit. This particularly applies to the multiplicity of research projects which can underpin innovation and vital developments in services. Service user engagement is to be strongly encouraged. We are thoroughly supportive of this.

As the noble Baroness has said, it seems entirely reasonable, as we reflect on the introduction of universal credit, to see how far a legislative solution will cover the situation, rather than perhaps just relying upon practice and guidance, as happens in part at the moment. However, as we have heard, that does not cover all of the gaps, and there are a range of issues about whether payment just covers actual outgoings, about whether there is an excess or profit, about the frequency of activity and about whether any spreading or averaging rules would apply-we went down that avenue at one stage. There is also the issue of protecting those who decline a payment from the notional income rules. It may be that the disregard regime in universal credit could help or could be made to help. On the basis of the noble Baroness's figure, that may not be the case.

Turning to the specifics of the amendment, I have an issue about terminology. It refers to expenses,

"wholly, exclusively and necessarily incurred in the performance of the duties of the employment".

It is an interesting point to distinguish employment and involvement. It is certainly the case in tax legislation, and I think in benefits legislation also, that the phrase "wholly, exclusively and necessarily" precludes taking the costs of travel from home to work out of the arrangements. There has always been a distinction between the cost of undertaking travel as part of your work or involvement and putting yourself in a position to do that, which is travel from home to work. Therefore I am not sure that the formulation is necessarily the right one.

This has been going on for a number of years. Progress has been made, but it clearly has not solved the problem, as we have heard. It would not have a huge price tag, if any, to use this opportunity with universal credit to deal with it absolutely.

3.30 pm

Lord Freud: My Lords, I am well aware of the work of my noble friend Lady Thomas on this, although perhaps not quite as well aware of it as the noble Lord, Lord McKenzie. Clearly, the amendment is intended to improve the position of disabled people on benefits who participate in service user groups. Changes in the regulations to do just that were made towards the end of the last Parliament, and universal credit will carry these forward. Nothing in universal credit will worsen the position of participants in service user groups.

Looking purely at the earnings element-the fee element, not the expenses element-the structure of universal credit will improve the general position for participants. The earnings taper will ensure that any fees which are beyond the claimant's earnings disregard will still make the claimant better off overall. The removal of the 16-hour permitted work rule and the

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personalised conditionality regime will see to it that the claimant will not fall out of the benefit if they undertake a modest amount of voluntary or paid activity. That is as far as the earnings element is concerned.

The amendments to the social security regulations made in 2009 exempted individuals covered by the definition of service user from the notional income rules and ensured that any expenses they received would be disregarded in the benefit calculation. I think that all parties welcomed these improvements when they were introduced. Therefore, my noble friend's amendment seeks simply to build on those 2009 changes.

This is a matter for regulations, and there will always be scope to make further changes where these are needed. However, we need to ensure that any definition is clear and can easily be applied by administrators. The current definition was drafted on that basis. Like the noble Lord, Lord McKenzie, I am not convinced that it will be feasible to broaden the current definition in the way proposed by the amendment, but I am very pleased to meet my noble friend on this, as she requested, and I think that we shall be able to get this right.

In the current regulations, the definition of service user is limited to consultation for specified purposes. In all cases, the consultation with service users is required by law. The intention here was to avoid extending the easements to the activities of commercial enterprises. We also need to ensure that benefit claimants are not able to deprive themselves of regular earnings and so remain on benefit while operating as consultants to research bodies. These protections remain valid from the Government's point of view, so any new regulations need to protect the Government in some of these areas.

On the general question of expenses, we will apply the same disregards in universal credit as in the existing benefits. We would not want claimants in work to see their universal credit fall as a result of their receiving payments as reimbursement for expenses that they have incurred solely in carrying out their job. To do so would reduce the incentive to take a job, which would undermine the core purpose of universal credit. Briefing note number 9 was intended to clarify that work-related expenses could continue to be disregarded in the same circumstances as apply now.

We also intend, as now, to exempt reimbursement of expenses made to volunteers who give their time to charities and voluntary organisations from the calculation of claimants' unearned income.

I hope that this account will reassure noble Lords about our intentions for the treatment of expenses in universal credit generally. I think that there can now be a process of refining and enabling service user groups to make their valuable contribution in the fullest possible way, and that is what I shall be aiming to do with my noble friend when we meet. However, these are not matters for primary legislation; they are matters to get right in regulations. That is what we will be aiming to do and I hope that, on that basis, my noble friend will be content to withdraw the amendment.

Baroness Hollis of Heigham: My Lords, perhaps I may ask the Minister a question. I chair a housing association, as I have declared previously, and we pay

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a very modest sum per year to our tenant board members. One of them was on disability benefits and preferred not to take the very modest emolument because of the interaction with his disability benefits and the problem that he would have of resuming them as and when the emoluments ended. However, because he could have drawn that emolument, it was assumed under benefit rules that he had done so and he could not make that move. I ask the Minister to look at this point. This was, after all, a sort of charitable housing association and he was stuck.

Lord Freud: My Lords, I will look at it, but I am not sure I need to study it very hard. As I understand it, the fear of that individual is that if they earn too much money they get taken off their benefit structure entirely. Because they are earning too much, they are outside the disability benefit structure and they must therefore get on another one and they then have a terrible problem. That does not apply under the universal credit. The worst that could happen is that the universal credit goes down in the period, reflecting the emolument, but they are better off overall. That acute fear of being left stranded goes. In that particular case, and many others like it, the desperate cliff-edge position which currently exists is not there under universal credit.

Baroness Thomas of Winchester: I thank the noble Lord, Lord McKenzie, for his support, as does my noble friend Lady Wilkins. I would like to take up my noble friend's offer of a meeting before the Bill reaches the next stage, because we were told specifically by the officials of the noble Lord, Lord McKenzie, when he was Minister, that they could not extend this to bona fide NHS research-nothing to do with commercial interests-unless there was a peg in legislation on which to hang the regulations. I therefore do not accept my noble friend's statement that everything can be done by regulations, because we found that this particular matter could not be done. We are not talking about people who can get a job; we are talking about severely disabled people, who are a million miles from the job market, but they have specific conditions which are needed for vital research. I hope this can be sorted out before the Bill goes any further. We need this peg, and it is not too late to put it in this Bill. I will take up the offer of a meeting, which I have done on many occasions when I have withdrawn this sort of amendment-and, of course, it finally bore fruit.

Lord Freud: We do not need a legislative peg in primary legislation to make changes here. That was a reference to NHS legislation. How we define and work through the different types of income is something which we are going to do in regulation. I can assure my noble friend that, although this is something which is slightly complicated to do, it does not have the desperate urgency that requires it to be done in the next couple of weeks.

Baroness Thomas of Winchester: I am caught between two pieces of advice: one is that we do need legislation and one is that we do not. I am somewhat conflicted, and I would like to get this sorted out before Third Reading. We have been told that for the rules that I

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read out from the statutory instrument, there was a peg on which to hang it, and that is why they were there. We were told that because there is nothing for NHS research we could not extend it. I shall withdraw the amendment now, but hope that we can resolve this before Third Reading, if not Report.

Lord McKenzie of Luton: Could the noble Lord arrange to send us copies of the earlier advice, because there is some confusion and I am not clear in my mind?

Lord Freud: My Lords, I will have an early meeting with my noble friend on this, and we will take it from there. Subject to that meeting, I will provide that particular advice, otherwise we may go round the houses on this very technical matter. I hope it is one we can resolve pretty fast, with a letter.

Baroness Thomas of Winchester: I beg leave to withdraw the amendment.

Amendment 52DA withdrawn.

Amendment 52DB not moved.

Schedule 1 agreed.

Clause 32 agreed.

Schedule 2 : Universal credit: amendments

Amendment 53 not moved.

Schedule 2 agreed.

Clause 33 agreed.

Clause 34 : Abolition of benefits

Amendment 53A had been retabled as Amendment 53C.

Amendments 53B and 53C not moved.

Clause 34 agreed.

Schedule 3 agreed.

Clause 35 : Universal credit and state pension credit

Amendment 54 not moved.

Clause 35 agreed.

Schedule 4 : Housing credit element of state pension credit

Amendment 55 not moved.

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Amendment 55ZA

Moved by Lord McKenzie of Luton

55ZA: Schedule 4, page 123, leave out lines 18 and 19

Lord McKenzie of Luton: My Lords, this is a probing amendment to seek the best understanding we can about how support for housing will work for someone on pension credit. Because housing benefit is to be abolished, housing support for those on pension credit, and thereafter outside universal credit, will be by way of a housing credit. It is accepted that there will be a lot of detail to work through, but perhaps the Minister can give us an update on progress.

The system will also provide support for children via a similar route, where this is applicable for those on pension credit. This will often be in circumstances where grandparents have responsibility for their grandchildren. Assurance was given in the other place that the Bill does not need to make special provision for this, because existing powers are sufficient. We accept that position. Therefore, the prospect of there being three strands or components of payments in these circumstances will flow from the Bill.

The points that arise are as follows: will the basic housing allowance follow the local housing allowance regime as for universal credit claimants? Will the 30 per cent percentile, the local housing allowance caps and non-dependant deduction increases be applied to this regime? Will those on guaranteed credit be able to access support for mortgage interest? Is it envisaged that there will be a composite and interlocking calculation of the pension credit, housing and possible child credit components, or will these be calculated separately? What is envisaged in respect of tapers, and will these be aligned? What will this mean for direct payments to landlords? Do the Government envisage any arrangements for pensioners different from those for universal credit claimants? Can we hear what the proposals are for support for mortgage interest-both for those in receipt of pension credit and universal credit? We have an outstanding question on that. What does this mean for the treatment of capital? We previously discussed how these differ between housing benefit and pension credit systems. The former has the £16,000 cut-off and the latter has no maximum, but income is taken into account. Will these two regimes sit side by side, or will they be rationalised? If they are going to be rationalised, on what basis will that happen? What arrangements will operate for uprating purposes? Will CPI be applied to the housing component? What about the uprating of pension credit? I beg to move.

3.45 pm

Lord Freud: My Lords, the intention is that the housing credit will broadly follow the current rules that apply in housing benefit. For someone to be entitled to the housing credit element of pension credit they will need to live in Great Britain, have reached the pension credit qualifying age and be liable for housing costs that relate to the accommodation they live in. The extent to which a person is liable for the housing costs, what constitutes the accommodation, how we

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treat temporary absences from home and how we calculate the amount of the housing credit will also be included in regulations.

A person may be entitled to the housing credit whether or not they receive the guarantee credit or saving credit element of pension credit. This schedule also enables us to specify that rates of support may differ by area. So, for example, different housing allowance rates can apply in different parts of the country.

In introducing the new housing credit we will, however, look for opportunities to streamline the benefit and align rules wherever possible. This includes extending pension credit provisions to the housing credit wherever possible. One such area includes assessed income periods. These are specified periods during which a customer is not required to report any changes in their requirement provision-namely, their occupational pensions and capital.

The schedule provides us with the flexibility to determine in what circumstances retirement provision will not be fixed in relation to the housing credit regulations, which will be subject to the appropriate level of scrutiny. The schedule also contains the consequential amendments to other legislation needed as a result of the abolition of housing benefit and the introduction of the housing credit.

This probing amendment would remove flexibility and would work to the detriment of those who, through no fault of their own, require assistance with their housing costs while at the same time making the system vulnerable to manipulation.

The noble Lord asked a large number of detailed questions on this matter. I can deal with some of them but I will answer most by way of a letter. On direct payments to landlords, it is not our intention that pensioners would be part of that regime, which is for working-age people. We are not planning to change the SMI arrangements for pensioners. Uprating will be done by CPI, as it will be with working age. We need capital limits in the system overall, clearly, and we need to determine what the right rates should be. They should be at a level where we do not see a substantial change in practice. As the noble Lord pointed out, this is now done by a tariff income process and, as we move towards an overall position in the housing credit, we need to get the equivalence.

I think that deals with the bulk of the questions. There are one or two more, which I will answer by letter, but, given the assurances about how we intend to use these powers, I urge the noble Lord to withdraw the amendment.

Baroness Lister of Burtersett: My Lords, will the Minister make sure that that letter includes the answer to a question which was asked a few sessions ago but to which the Committee never received an answer? It was not specifically about pensioners but was a more general question about whether mortgage interest will be paid as part of the universal credit or to the lender.

Lord Freud: We are looking very closely at the support for mortgage interest. I can let the Committee know that we are planning to consult on how we do

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that. Rather than include that point in the letter, I will make sure that noble Lords are informed when that consultation paper comes out.

Lord McKenzie of Luton: I am most grateful to the noble Lord for a number of detailed replies, with some follow-up, but can he just be a little more specific around the capital rules? From his answer, it was very unclear what is intended. We have two systems for housing benefit: we have the cut-off at £16,000, whereas for the pension credit we do not. I am not sure whether those two systems will sit side by side in the new arrangements, or whether there will be some common approach to capital, and whether that will adopt the pension credit approach or the current housing benefit approach.

Lord Freud: My Lords, it will go somewhere in between. It will be a capital limit as opposed to a tariff income approach, but it will be a higher capital limit than that for working-age claimants.

Lord McKenzie of Luton: As I understand it, that will operate for pension credit as well as the housing component.

Lord Freud: Yes, that is correct.

Lord McKenzie of Luton: I am grateful for that-well, I am grateful for the answer, not necessarily the information. It is the lowest common denominator again. I beg leave to withdraw the amendment.

Amendment 55ZA withdrawn.

3.52 pm

Sitting suspended.

4.02 pm

Schedule 4 agreed.

Clause 36 agreed.

Schedule 5 agreed.

Clause 37 agreed.

Schedule 6 : Restrictions on entitlement

Amendments 55A and 55B not moved.

Schedule 6 agreed.

Clause 38 : Capability for work or work-related activity

Amendment 55C

Moved by Baroness Howe of Idlicote

55C: Clause 38, page 17, line 32, at end insert-

"(6A) Regulations under this section must provide that, for a claimant to be treated as not having limited capability for work, the claimant must be able to-

(a) reliably perform their work on a sustainable basis, for at least 26 weeks, without requiring excessive leave or absences;

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(b) work in open unsupported employment without requiring excessive support to perform their work.

(6B) For the purposes of regulations made under this section-

"work" means work-

(a) that is for at least 16 hours per week on wages that are at or above the relevant minimum wage; and

(b) that exists in the United Kingdom;

"excessive support" means more than what is usually considered to be reasonable adjustments or normal supervision (or both)."

Baroness Howe of Idlicote: I present the sincere apologies of my noble friend Lady Mar. She had very much hoped that this amendment would come up on Tuesday, but alas, she has an engagement that she could not possibly break. So I will inadequately move it on her behalf.

Under the Bill, a person will be deemed to have limited capacity for work if the claimant's capacity for work is limited by their physical or mental condition and if the limitation is such that it is not reasonable to require the claimant to work. The work capability assessment is designed to assess whether a claimant has limited capacity for work or limited capability for work-related activity, but there is no definition of work either on the face of the Bill or in regulations. A group of charities that includes the MS Society, Parkinson's UK, Arthritis Care and Forward-ME have indicated that this is a significant omission, and it is one that I certainly agree with my noble friend Lady Mar should be rectified.

Individuals must not only be capable of some very limited work; they must be capable of obtaining realistic and sustainable employment. I am sure that the Minister will acknowledge that capability for work is not a clear-cut issue. Many disabled people fit neither the "completely fit for work" nor the "completely incapable of work" categories. As the Minister knows, the main interest is in those with a fluctuating condition-an area where my noble friend Lady Mar has both experience and, indeed, considerable knowledge. They can unpredictably veer between both categories and, however much they may want to work, this group finds it particularly difficult to obtain and retain sustainable employment.

My noble friend and I strongly support the principle that all those who are able to work should be supported through the work-related activity group in ESA, which is designed particularly to identify those who have a limited capacity for work. However, those who face significant barriers to returning to the workplace require extra time and support to move back into the work environment. The WRAG is a very important provision for those with fluctuating conditions, as it asks them to undertake work-related activities that are personalised and appropriate to their needs and abilities. However, the group believes that the current work capability assessment sets too high a bar for the test of limited capability for work-the test that admits people to the WRAG. The test fails to take into account the reality of the claimant's abilities not just to take on work but to retain and manage unsupported sustainable employment.

The Australian Social Security Act 1991 and the Australian assessment of work-related impairment for disability support pension criteria supply a sensible

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definition of what could be meant by the ability to carry out meaningful work. Slightly amended for the UK, as is proposed in my amendment, this could provide an important aid in determining whether a claimant actually has limited capability for work. Broadly, the amendment would specify that, in order to be capable of work, the claimant should be able to: work for at least 15 or 16 hours each week in meaningful work that pays at least the national minimum wage; reliably perform their work on a sustainable basis without requiring excessive leave or absences-the Australian system takes this to be at least 26 weeks; and, lastly, work in unsupported employment without requiring excessive support to perform their work. I beg to move.

Lord Wigley: My Lords, I am very pleased to support this amendment. One is very aware of the tremendous work that the noble Countess, Lady Mar, has undertaken in this area and of her expertise. There is no doubt that the fluctuating condition of many people with disabilities can be a difficult factor from whichever end you look at it: from the point of view of the disabled person, who may want to work but is uncertain whether they can carry out the work, or from the point of view of the state and the way in which these regulations apply to such people.

The one element in this amendment that I am not entirely certain about is the question of "unsupported employment". There are times when, if a disabled person is given adequate support, they can be in full-time meaningful work on a continuous basis. I would not want this amendment to undermine that dimension, which is very important.

Turning to new subsection (6B) proposed by the amendment, can the Minister comment on paragraph (b), which refers to work,

"which exists in the United Kingdom"?

This raises some interesting questions. Is it in the Government's mind that there might be work outside the United Kingdom, the availability of which could, if it were not taken up, lead to people being debarred from their benefits? One thinks of people living in Dover: an hour's journey puts them into the French catchment area. If one lives in Holyhead, if the fast boats are running one could quickly be in Dublin-presuming that there is any work in Dublin these days. The Government's intention in this matter certainly needs to be probed. If paragraph (b) is necessary, I would be interested to know what the Government's explanation is.

Baroness Wilkins: My Lords, I strongly support this amendment in the hope that it will go some way to meeting the fears of the thousands of disabled people facing their work capacity assessment, especially those who have a fluctuating condition such as multiple sclerosis or an ill understood condition such as ME. Members of the Committee will have been inundated with letters from people who have been given every reason to mistrust the assessment process as carried out by Atos, and I know that the Minister has been made very aware of the stress and anxiety this is causing.

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Broadly, this amendment sets out that, in order to be deemed capable of work, the claimant should be able to work for at least 16 hours each week in meaningful work that pays the national minimum wage or above and, most importantly, that they can reliably perform their work on a sustainable basis of at least 26 weeks without requiring excessive leave or absences. This would do much to rectify the current situation. What happens now is that at the end of an Atos report on a claimant, which goes to DWP decision-makers following the completion of the work capability assessment, there is usually a prognosis which says, "This claimant should be able to return to work within x months". However, the WCA is not currently designed to offer any concrete evidence of a person's realistic capability to find employment. The content of the WCA is designed purely to assess a person's physical and mental functionality, not their ability to find employment, how long this may take or what support an individual may need to do so in the light of the barriers to work that their condition presents.

The WCA test focuses largely on a claimant's typical day. Yet there is no such thing as a typical day for someone with a fluctuating condition. For example, a woman with MS in her early 30s told the MS Society that on one day she may feel well enough to participate in voluntary work and have a busy and active lifestyle, yet during a recent lapse she was rendered completely blind for a period of weeks and found that on many days she was unable to get out of bed due to disabling fatigue.

The typical-day history taken in the WCA refers to a typical day out of work. However, a typical day out of work for someone with a long-term condition could be very different from a typical day if they had to travel and complete a full day's work. One person with multiple sclerosis told the society, "Nothing done in the interview related to my ability or my lack of ability to work. I answered the questions as honestly as I was able, but was not able to stress the fluctuating nature of the symptoms, i.e. yes, I can read, but not for more than a few minutes and then I have to rest". Another person said, "They have no idea what day with MS is like. They do not know how work would go if one day you can walk but the next you cannot, if one day you pee yourself continually and the next you are okay. Who would employ me? I am constantly fatigued, yet of course the WCA found me fit for work."

I do not doubt the Minister's sincerity when he says that his whole motivation is to support and enable people to take their place in the world of work, but how can he hope for this to succeed when the assessment for determining eligibility for universal credit is based on such a flawed, unjust and mistrusted system? As we have heard too many times, 40 per cent of those wrongly found fit for work win on appeal of the decision, and in some areas I am told that the figure increases to 90 per cent if people are represented at tribunal.

4.15 pm

This amendment gives us an opportunity to look at the Atos Healthcare assessment. We have heard that there is considerable concern and complaint about

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how it is carried out. We have received many letters from claimants who feel that they have been abused by their treatment, and medical professionals have provided further evidence. In an article in the British Medical Journal this year, reference BMJ 2011 342:d599, Margaret McCartney, a GP, questioned the ethics of doctors performing assessments without access to patients' medical records. She also questioned the lack of specialist knowledge among the physiotherapists and general nurses employed by Atos. She described her experience of a recruitment evening at Atos Healthcare in Glasgow, and from what is a long and critical article, I shall quote briefly:

"At the meeting, I asked how it was possible to know the variation in symptoms that a patient may have during a one-off assessment. I was told that this could be 'difficult' but this 'wasn't an occupational health service'. Instead, it was a 'functional assessment'... One nurse in the audience asked about training in mental health, as she had had little training in this area and would not feel competent to assess it in a fitness for work setting. The reply was that health professionals were 'very thoroughly assessed' at interview for their abilities; however, general nurses were often taken on and given training ... One assessment, which initially reported a woman was fit to work, reported as evidence that her mental health was reasonable that she 'did not appear to be trembling ... sweating ... or make rocking movements' ".

I will not go on with the plethora of complaints about Atos, but I should like to ask the Minister three questions.

First, what part does medical evidence supplied by a claimant's specialist doctor or GP play in the decision arrived at by the Atos Healthcare medical assessor? Is the medical assessor bound to refer to this evidence or is it discretionary? Secondly, are there specific conditions in the Atos Healthcare/DWP contract that require medical assessors to seek a specialist medical opinion, and is there any monitoring evidence that such a contractual requirement is observed? Lastly, is Atos Healthcare subject to regulation by the General Medical Council or the Care Quality Commission? If not, to which regulatory body are the decisions of its medical assessors accountable?

Finally, in earlier sessions of this Committee we have talked about the appalling language used about benefit claimants, with press headlines of "scroungers" and "benefit cheats", which it seems that the Government have taken no action to modify. Indeed, there is a suspicion among claimants that the Government have stoked the headlines. These headlines have a particularly negative effect on people with fluctuating or misunderstood conditions such as ME and MS. Neighbours will see them in the street being perfectly active and untroubled on one day, but are totally unaware that those people are not even able to get to the door the next day; they may be in bed for weeks. Does the Minister's department have any action planned to educate the press and the public in order to counteract these damaging press reports that are bringing so much misery to disabled people's lives? In the mean time, I hope that the Minister will accept this amendment, as it would go some way to allaying claimants' fears.

Baroness Grey-Thompson: My Lords, I, too, support this amendment and I, too, wish to speak about the assessment process. A number of people have contacted me just on this amendment alone-around 45 at the last count, and the figure is increasing daily. They want to express their concerns in this area and they are

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using very strong words. People are telling me every single day that they are terrified by the process they are being asked to go through. I accept that it is a difficult process. We demand that through the system we should grade impairment, which is a necessary part of the process, and we try to put people in boxes. However, disability and impairment affect people in such different ways. The process expects yes and no answers and that is almost impossible when we are considering a static condition, let alone fluctuating ones. Many people writing to me say that there is little room to give medical evidence or provide supplementary data and that every step of the process feels very confrontational. It is essential that the test is appropriate for disabled people.

I am also concerned about the number of people who tell me that the facilities used for the assessments are simply not accessible. One example is the Croydon assessment centre; it has a lift for wheelchair users but wheelchair users are not allowed to use the lift due to health and safety reasons. To enter the centre, you have to navigate 46 steps. If you cannot do that, the nearest centre is a 14-mile round trip away, which is very challenging for a number of people.

I have also received a number of e-mails saying that there is a yo-yo process going on. One ex-serviceman was assessed in 2003 as being 30 per cent disabled and yo-yoed eight times in the next five years or so between being 30 per cent and 70 per cent disabled. These various reassessments and appeals were carried out at significant expense to the public purse and distress to the individual. When he questioned the process, this man was told by the assessor that he was moved back and forth so many times because they did not really understand trauma.

As the noble Baroness, Lady Wilkins, has said, disabled people are constantly being labelled in the media as benefit scroungers. The rise in the amount of hate crime is a real concern. Could the Minister reassure disabled people who are feeling vulnerable and afraid, who see no light at the end of the tunnel and no improvement in the process? They want to work and be part of society but they feel themselves to be victims of what is happening.

Baroness Hayter of Kentish Town: My Lords, I support this amendment. As has been stated, the WCA is about deciding whether a claimant has limited capability, either for work or work-related activity. As the noble Baroness, Lady Howe, said, there is no definition in the Bill, nor indeed in regulation, about what is meant by "work". This is particularly important for those with fluctuating conditions, who are, at different times, both fit for work and incapable of work within the same month. We already know that, apart from any assessment, people with unpredictable fluctuations find it difficult to obtain employment or to keep it. This is partly because of their previous work records, partly if any of these fluctuations occurred during a probation period, and partly if they are honest and open with a potential employer.

It goes without saying that we support the principle of helping all those who are able to work to do so, but I am concerned about the apparent drop-off in the

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number of new customers helped by the Access to Work scheme, which has gone down to 13,240 compared with 16,520 in the previous year-a fall of nearly a quarter. It would be interesting to know what is thought to be the reason behind that, because it is an important way of helping people into work.

The really important word in this amendment is "sustainable". Sustainable employment is defined as 15 or 16 hours a week and on a basis probably of 26 weeks. This amendment is particularly important, as the Government are proposing that regulations about defining capability for work or work-related activity are to be subject only to negative resolution procedure and thus with no opportunity for debate.

We have had a note which states that the Government's intention is that regulations made under subsection (3) will set out the detailed circumstances and descriptors used to determine limited capability for work and limited capability for work-related activity. These regulations will be based on the Employment and Support Allowance Regulations 2008 and the subsequent amendments contained in the Employment and Support Allowance (Limited Capability for Work and Limited Capability for Work-related Activity) (Amendment) Regulations 2011 and any other changes to the ESA provisions before the introduction of UC in 2013.

We understand that the Government are undertaking further work to develop a supplement to the assessment to accurately identify individuals with enduring health conditions that limit their long-term ability to fully provide for themselves through work. However, regulations under Clause 41, which are also subject to the negative resolution procedure, will define the meaning of "work". Given that this is another area where we remain unclear of the Government's plan, it will be particularly important to have assurances about how people with fluctuating conditions are to be protected.

Lord McAvoy: My Lords, as a former Member of the other House with experience of constituency cases and organisations, I could not sit silent during this debate. I fully support the point outlined by the noble Baronesses, Lady Howe, Lady Wilkins and Lady Grey-Thompson.

Not referring to a GP when there is a fluctuating illness results in Atos taking a hard line. As I have said before, I am not one of life's social liberals, but the line taken by Atos on too many occasions has been unfair and there has often been a bit of bother in trying to sort it out. This causes fear and apprehension, not only among the less able bodied but also among the able bodied who are not particularly articulate when they face Atos and its people. I hope notice is taken of the circumstances illustrated by my colleagues today because it is wrong that there should be that fear.

I know that the media, as is their wont, take some cases, pile into them and get stuck into government and organisations such as Atos to highlight obvious unfairness, but there is enough experience in the department and among Ministers to counteract that. However, there is something in the amendment. The Minister can take it away, look at it, amend it or alter it, but I sincerely hope that he takes notice of it and does not dismiss it.

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4.30 pm

Lord McKenzie of Luton: My Lords, this is an interesting and challenging amendment and the debate has been deeply concerning. We have heard from the noble Baroness, Lady Grey-Thompson, that people are terrified and scared about facilities not being available; we have heard from my noble friend Lady Wilkins about the mistrust of the WCA and the profound mistrust of Atos and some challenging questions about how they are regulated; and we have heard from my noble friend Lord McAvoy and the noble Baroness, Lady Howe, about fluctuating conditions.

I understand that the system works at present by seeking to establish if someone has limited capability for work, and that this is determined by a range of descriptors which seek to establish how someone's physical and mental health affects their functioning. Someone not reaching a sufficient points total would not be classified as having limited capability for work and would therefore-in essence by default-be deemed fit for work. The point was pressed that the assessment does not look at whether someone having not been deemed to have limited capability for work is therefore fit for work in any practical or coherent way. Actually, that gives food for thought. Somebody who has been deemed fit for work would seem to claim JSA and be subject to relevant conditionality and in the world of universal credit be subject to all work-related requirements. There have been ongoing debates about how appropriate the descriptors are and, perhaps more fundamentally, how they are applied in practice. We have certainly heard some of that today. This is of particular interest to us, because we were in government when the system was introduced; I remember all the policy staff and all the work that was done to introduce the ESA and the WCA. Given the fact that it is not working as it should, maybe the judgment was that it is not capable of working in any event, and that is of some concern.

The Harrington review has published its first considerations and the recommendations have been accepted. It is understood that the second review was completed in July and is still under consideration. Perhaps the Minister can give us an update.

A key question that the amendment poses is whether the WCA, properly applied, would mean that the outcome sought by Amendment 55C would inevitably follow, assuming that it was the outcome that was wanted. I think probably not. On making a judgment about somebody having limited capability for work, there is a prognosis also about how long they would remain so assessed-that is to say, a determination about when they would be fit for work. The noble Baroness, Lady Wilkins, again made this point. When making that determination, to what extent would those judgments reflect the criteria that this amendment seeks to set out? Again, I suspect not-but perhaps the Minister can help us by telling us the criteria applied when someone is making a judgment after a while whether somebody is fit to go back to work and fit for the JSA regime or the full work conditionality. Is it just the absence of failure of work-related activities requirements, or is it something more positive in trying to see what they are actually capable of and what the definition is of work? I am not being very clear on this issue, but my concern when I think about it-and I

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had not thought about it in this way before-is that the WCA assessment puts somebody in a category. If they fail, although fail is perhaps not the right term, they go by default into a category that assumes they are fit for work. Should that judgment inevitably follow from that process?

There is a sense of cliff edge about the system. On one side of it, there are full conditionalities and harsher sanctions, and the full work-related requirements; on the other side, there is lesser conditionality and requirements only in respect of work-related activity, no prospect of higher level sanctions and higher benefit levels. Of course, all of this rests on the judgment under the WCA, subject to reconsideration and appeals and so on. So much hinges not only on the descriptors and how they are set out and whether they are appropriate but on how they are applied. Universal credit does not particularly smooth that particular cliff edge, although it deals with other cliff edges about going in and out of work. But with regard to the analysis and judgment of where people sit in the categories, it does not particularly help. A lot of this is to do with the support that people should have.

Lord Wigley: I invite the noble Lord to comment on the relevance of assistance in work. If people are available to help someone who is disabled to undertake their work, it is possible for them to fulfil some of these requirements. If that person is not available, it is the failure of the state to make that person available that is creating the handicap for the person who is disabled. In applying the social definition, there could not be a clearer example than that.

Lord McKenzie of Luton: I very much agree with the noble Lord, Lord Wigley. He is absolutely right about that. I imagine that the Minister will reply that this is too narrow a definition of work but I do not want to anticipate what he wants to say. The more I think about it-this is not a formal Front-Bench view-the more I believe that we ought to be thinking about smoothing the path so that we do not have that cliff-edge, as we are doing away with cliff-edges for in-work and out-of-work benefits. Is there not something that we could do to create more of a continuum, so that these very difficult judgments would not have to be made?

Baroness Hollis of Heigham: Dials not dichotomies.

Lord McKenzie of Luton: Indeed. Perhaps I may finish off with a question. I think that earlier in our deliberations we touched on what would happen if someone sought to challenge the WCA determination, as well as concerns about the fact that their benefit would be withheld during that process. I do not know whether the Minister has anything further to say on that. I think that there was an exchange in the Commons on which I had a note on a piece of paper, which I have lost, but it seemed to give some credence to press reports that people were being actively discouraged from going to appeal. If that were the case, it would be an absolute disgrace.

I think that there is great merit in the amendment. Like the noble Lord, Lord Wigley, and perhaps some other noble Lords, I would not accept it quite as it

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says. However, when someone says that a person should be in the WRAG group but they should be capable of coming out of it in three months or six months, there ought to be a test of what they would be capable of at that point and whether that would amount to work under this sort of description. I should be interested in the noble Lord's comments on that.

Lord Freud: My Lords, I should start by making a point about the overall attitude of the Government to people who are disabled or who have difficult medical conditions. We are committed to unequivocal support for those people, and that is what the support group is about. There is extra funding for the group and we are absolutely determined to provide that support. In the midst of the concerns about particular things, and as we try to make sure that the gateway works and that we can find the people who really need our support, that fact can be lost. However, I want noble Lords in this Committee Room to be under no illusion that we want to support the people who need our support. I have already expressed my concern about the fear factor, which I find very disturbing. I also acknowledge that the press in this country sometimes writes articles that none of us in this room find appropriate. I certainly do not find them appropriate and my colleagues in the department find them deeply disturbing. We do not control the press, regrettably, and things are written that we do not like to see. However, I am pleased to put on the record where we stand.

We debate the WCA a lot. We have debated it in this Committee and elsewhere, but, if noble Lords will forgive me, on this occasion I want to try to keep the debate in the context of the Bill.

The work capability assessment uses a number of specific, measurable criteria, covering all types of disability and health conditions, to provide an assessment of whether an individual has limited capability for work. The assessment was designed to take account of chronic and fluctuating conditions. It is not intended to be a snapshot but looks at what someone can do reliably, repeatedly and safely. It takes account of the effects of pain and fatigue. The healthcare professionals conducting the assessment are fully trained in understanding fluctuating conditions. Claimants get a full opportunity to explain how their condition varies over time.

The criteria were developed in conjunction with disability experts, medical professionals and a significant number of disability representative groups. They focus on physical and mental function. Examples of criteria include whether someone can stand or sit for periods of time, their ability to lift and reach, how they learn new tasks and whether they have problems engaging socially. The criteria fully take account of the fluctuating nature of many conditions. The training and guidance for the assessment is clear that where an individual is unable to complete an activity repeatedly or reliably, they will score points against the relevant criteria.

Baroness Wilkins: Does the Minister accept that he has not yet received the report of Professor Harrington's working party on fluctuating conditions? There may well be recommendations that he has to make in that regard.

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Lord Freud: Yes, Professor Harrington is currently looking at two areas: mental health conditions and fluctuating conditions. We have received one but not the other. We will clearly take those into account and look at them closely when they come in. To that extent, the debate today is slightly premature. It may not be later in the process of the Bill.

To pick up on the point of the noble Baroness, Lady Wilkins, on the medical evidence used, all available evidence, including that from GPs or specialists, is fully considered by the department's decision-makers. The final decision is with the department. It gets a recommendation from Atos and takes that into account with all this other information. Following recommendations by Professor Harrington, decision-makers are now phoning claimants to ensure that they understand the process and can submit any additional medical evidence that they feel is relevant. However, GPs and specialists are not experts in disability assessment. Often, as advocates for their patients, they are not best placed to make a decision that affects benefit entitlement. We would not want to undermine the role of GPs as advocates for their patients.

As a result, the criteria provide a reliable, nuanced and measurable way of assessing limited capability for work. This ensures that a full understanding is gained of an individual's disability or health condition, the effects of that disability or health condition, how these effects may vary over time and whether it would be reasonable for that person to work or not.

The amendment suggests that an additional test with additional criteria is added to the assessment of limited capability for work. However, the criteria suggested are not readily measurable or nuanced. It would, for instance, be impossible to measure the potential excessiveness of any workplace adjustments because they will vary depending on the size and capacity of the employer concerned.

An additional test would also not provide an objective or more accurate assessment of an individual's limitations-and in some instances could hinder it. For instance, it would be difficult to provide strong evidence of whether someone currently out of work could work for 26 weeks without significant time off without knowing the type of job they would be in and their health circumstances at the time. Such judgements are difficult to make and, as a result, the criteria would risk being inconsistently applied.

4.45 pm

We recognise that concerns have been raised about the current assessment for limited capability for work. Indeed, many in this Room have raised concerns. However, as noble Lords will know, we are committed to improving the work capability assessment through a series of independent reviews led by Professor Malcolm Harrington. He has made clear that the work capability assessment is not broken and that it is the right assessment. One of the great failings of our welfare state is that we have left too many people on the sidelines and written them off without checking what their potential alternatives are. We are not trying to do people down but to assess what they can do, if they have the potential to work, and to help them to find a job.

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However, we want to make sure that the assessment process is right-a process that, after all, we inherited from the previous Government, as the noble Lord, Lord McKenzie, described. That is why we asked Professor Harrington to review it. Indeed, we were relieved when he said that the process was not broken. He published the first review in November 2010, setting out a series of recommendations. We fully endorsed his review and have implemented all his recommendations, including empowering decision-makers to make the right decision first time, improving communications with claimants and tasking Atos to employ mental function champions across its network.

I pick up the points made by the noble Baroness, Lady Wilkins, on registration. All healthcare professionals are registered with a professional body such as the General Medical Council. They must have had at least three years' post-qualification experience, received comprehensive training-eight days for doctors, 18 days for nurses and 21 days for physiotherapists-and be approved by DWP's Chief Medical Adviser. The thorough and stringent recruitment process means that only 18 per cent of healthcare professional applicants are successful. Once approved, all are subject to ongoing quality checks through audit, which the department validates. There have been approximately 20,000 checks in the past year. The contract stipulates that less than 5 per cent of reports must be classified as substandard, and less than 1 per cent of reports returned by decision-makers. These targets are consistently met.

Professor Harrington has recently reviewed our implementation of his recommendations. He found that,

"real progress is being made",

and he noted a "real enthusiasm for change" from decision-makers and officials throughout the department. He is undertaking a second review and, as part of that, is looking in more detail at the criteria for the assessment.

I pick up the comments of the noble Baroness, Lady Wilkins, on the rate of successful appeals for claimants. I have to make the obvious point that that rate is lower than under the old personal capability assessment, which was running at 50 per cent. Currently, the successful appeal rate for the WCA is 39 per cent. I should also make the obvious point that if a decision is overturned at appeal, it does not necessarily mean that the original decision was inaccurate. Customers often produce new evidence at their appeal and that is why there is a changed decision-there is no question of a mistake. Clearly, we want to drive down this rate of losing appeals. We have introduced measures to help to reduce appeal rates. These include calls to claimants to explain the decision reached, ensuring that all the available evidence has been submitted in claims, and improving feedback, communication and training between the agencies involved. We are looking forward to these further improvements in the second review, which we hope will keep the assessment fair and effective. We will continue to update the work capability assessment in the light of those reviews and, indeed, the work being carried out by the noble Countess, Lady Mar, who was the original instigator of the amendment.

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Given those assurances, I urge the noble Baroness to withdraw the amendment.

Lord Wigley: May I press the Minister a little further on the position of people who might be capable of work if they have assistance? To the extent that the assistance is not available, would that be a definitive reason why they should not lose their benefits?

Lord Freud: It is clear that a lot of changes are going on and I am not surprised that people do not understand them all. One of the things that we have done means that claimants in the support group can volunteer to go straight on to the work programme, where there is substantial help for them to get back into work. That is one way in which we are helping people who may find themselves in the worst possible position to get into work. We have made a very straightforward mechanism.

I pick up the point of the noble Lord, Lord McKenzie. We are instigating a process whereby people, if they are in the WRAG with a prognosis, are asked by work providers whether they would like to come in at any point-I think at six months. They are then encouraged to volunteer for the process early. They do not move from the WRAG to JSA until there is another WCA. We are talking about a process here; it is a dial for these people, as the noble Lord said, but it has to be understood in the context of how the work programme operates as well as how the WCA operates.

Baroness Hollis of Heigham: My Lords, may I ask the Minister a couple of questions? The first is about Atos. I was slightly taken aback by his statement that he did not want GPs' and consultants' evidence going to Atos because they were the patients' advocates and this was the proper role of the decision-maker. Behind this and other remarks that the noble Lord has made when talking about DLA, for example, is the belief that somehow there is an objective assessment that is to be much preferred to a "subjective" assessment-for example, the sort of diaries that disabled people are encouraged to keep when trying to determine what level of award they would get on DLA. Does the Minister accept the point that two people can have identical physical conditions but very different capacities for work by virtue of their education, mental health, family support networks and, frankly, the savings and income that they have behind them? That dowry of resource would allow someone in an identical physical situation to someone else to go into work when the other person could not.

The Minister seems to believe that there is something objective about this and that it must therefore be left with Atos because there is a sort of box-ticking going on here that is reliable. He believes that the GP, who has extended knowledge of the patient or applicant concerned, is somehow on the patient's side and is a subjective advocate whose view should not be taken into account. I find that approach wrong. Why, given that Atos is medically qualified, should it not receive advice from other medically qualified practitioners who know the patient's ability in certain situations of stress?

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My second question has nothing to do with that and is about Croydon. From the sound of it, the Government's Croydon centre is breaking the law of the DDA. Could the Minister follow that up?

Lord Freud: My Lords, I will follow up the Croydon situation. I was not aware of it, even though I was brought up in south Croydon.

Let me try to make this absolutely clear. The whole point of the assessment is to judge whether someone is functionally able to do the job, which is exactly what the noble Baroness was asking for. The point is that it can be done coherently and consistently by people who are experts in that function, whereas GPs and specialists are trained in diagnosis and treatments which are entirely different; it is not their job to see people and make those judgments day in, day out on a consistent basis. But that is what we are looking for. Atos Healthcare professionals are trained in disability assessment, which is assessing the functional effects of a person's condition or disability. That is exactly what the noble Baroness is asking for.

Baroness Howe of Idlicote: My Lords, this has certainly been a very wide-ranging and passionate debate on these issues, with good reason. I am certain that my noble friend Lady Mar will read it with considerable interest and will no doubt have plenty of issues to raise at a later stage of the Bill, when I hope she will be available. We obviously have to wait for Professor Harrington's final report, which will be extremely helpful. The various questions that were raised makes one realise how complicated the way through these things will be. Above all, we will need to reassure people with these fluctuating conditions that they will be treated fairly. On my noble friend's behalf, I thank all noble Lords who have taken part in the debate and beg leave to withdraw the amendment.

Amendment 55C withdrawn.

Clause 38 agreed.

Clause 39 agreed.

Amendment 55D

Moved by Lord Wigley

55D: After Clause 39, insert the following new Clause-

"Effect on devolved administrations

Where the implementation of any sections in Part 1 of this Act may have an implication for other services which are the responsibilities of devolved administrations in Wales and Scotland, there shall not be a commencement of such sections until the impact of such provisions has been discussed with the relevant ministers of the devolved administrations."

Lord Wigley: My Lords, the Minister will not be entirely surprised that I raise the question of the possible knock-on effects of the Bill on the services provided by the devolved Administrations. It could no doubt be argued that there is an equivalent or parallel question arising with regard to the consequences for local government in England, which I shall touch on a little later.

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I tabled the amendment at this stage, towards the end of Part 1, because several of its provisions relating to disability, housing benefit and children have an impact on matters that are partly or wholly devolved. I could well have raised this question in different parts of the Bill but I shall content myself with just raising the issues at this stage if that is acceptable.

I remind the Committee that for both Wales and Scotland housing, social services, education, children's policy and local government are totally devolved. It is the responsibility of the Government of Wales to provide the finance needed for those responsibilities within Wales. On numerous occasions during the past four weeks we have heard the Minister repeatedly resort to the discretionary payments and provisions that may be made by local authorities in some circumstances to make up for any cash or support losses suffered by vulnerable individuals who may lose out under the changes in this legislation. Someone has to pay for that at the end of the day, whether it is for emergency housing, social workers' time or effort, or for the care bill needed for children or whoever.

The amendment is a modest one. It calls merely for the impact of legislation on devolved services to be discussed with relevant Ministers in Cardiff and Edinburgh before the provisions of Part 1 are implemented, which presumes that an impact assessment would have been made to enable that discussion to take place. The Minister may say that we are already having a dialogue with the devolved Administrations on these matters-I see him nodding, surprise, surprise-but I can assure him that Ministers in Wales have not so far received responses to their concerns that have put their minds at rest on a number of these points. For example, Welsh Ministers have expressed concern that changes to DLA rules will have a seriously greater effect in Wales than in England. There are 126,000 DLA claimants of working age in Wales, compared to less than 1.5 million in England. Wales has 5 per cent of the relevant population but 8 per cent of the claimants.

Welsh Ministers have expressed in writing, and made representations to Her Majesty's Government about, their fear that these legislative changes will make disproportionate additional demands on social services departments in Wales and on the budgets of those service providers, and have disproportionate consequences for devolved budgets.

5 pm

May I draw the Minister's attention to the fact that paragraph 17 of the Government of Wales concordat with the department for Work and Pensions states that,

"where ... decisions taken by DWP lead to additional costs for the Assembly Government where other arrangements"-

that is, the Barnett formula-

"do not exist automatically to account for such extra costs, the extra costs will be met by the decision maker whose policy results in those additional costs".

Therefore, can the Minister assure us that additional resources will be made available to the Government of Wales-likewise to Scotland-to meet those demands under that provision?

On another aspect, we have heard on a number of occasions that independent healthcare professionals may be asked to make assessments. If those duties fall

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on health departments in Wales, who picks up the Bill? Also in Wales, there are almost 100,000 DLA claimants of pensionable age, compared with 830,000 in England. Clearly, that is a much higher level-partly because a lot of people choose to retire to Wales-and in Wales both the care and mobility components of DLA are taken into account at the local authority's discretion in the charging assessments for non-residential care. Any changes in DLA will have a bearing on local government finance to that extent.

As we have been meeting in this Committee today, the Low review, Independence, Choice and Control, has been published and launched beneath us. It is interesting to note that it picks up the impact that there could be on local authorities in England. It says that:

"Local authorities were concerned that should the proposed removal of the mobility component go ahead, they would lack the resources to meet any shortfall".

One council commented that it,

"is concerned that the removal of DLA mobility ... will inevitably lead to a shortfall in income for residential providers, and that providers will seek to remedy the position through increased fees".

To that extent, we have a problem that is applicable in England, although obviously it applies in a slightly different way in Wales and Scotland. I dare say that other noble Lords will have had representations from COSLA in Scotland. They state that COSLA has significant concerns about the scope and timeframe for these changes and the impact that they will have for services and income streams for local authorities. Welfare reform is likely to pose major financial and service delivery risks, they say, while at the same time increasing demand for local government services. Welsh Ministers have also expressed concern that the changes to DLA eligibility will lead to an increase in the number of people thrown into debt and poverty, with all the additional responsibilities that that leads to falling on other agencies to provide the help that they need.

Finally, I refer to the knock-on effects for devolved Administrations arising from the changes in housing benefit. The changes in eligibility rules for housing benefit will hit some 40,000 social housing tenants in Wales, with a reduction of £11 on average for one-bedroom circumstances and £20 a week if there are two bedrooms. In that context, COSLA says that increased rent arrears will reduce councils' direct income and their ability to borrow, and will require councils to scale back their capital programmes. The Minister has also emphasised that the Government have a housing programme- I believe it is in England only-which is relevant to the rebalancing of housing stock. Have there been discussions for similar provision to be made available by the devolved Administrations, which have responsibility for housing in Wales and in Scotland?

In Committee on 20 October, the Minister acknowledged that there would be a financial impact on the local authorities and devolved Administrations in relation to housing, not least because of the impact on existing staff and the possible need for the application of TUPE rules. He gave an assurance that the new burdens doctrine applies to local government additional impositions. Can he confirm that the new burdens doctrine also applies to the devolved Administrations?

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Undoubtedly, some of these questions will arise in later parts of this Bill, so perhaps the Minister can give us some reassurance at this stage so that I do not need to return to them on every part of the Bill? I beg to move.

Lord German: My Lords, I am not able to support the amendment in the format in which the noble Lord has presented it. The wording states that matters should be discussed with relevant Ministers. The problem is that there are relevant Ministers-the noble Lord will know some of the people I refer to-who would probably say, "I am not going to discuss this with you", and that would be the end of the game. The amendment, of course, is about consultation.

I should like to make two additional points. Much of what is in this Bill requires action by local authorities which, as I have said before, cannot be undertaken by this Government and this Parliament. This means that the actions necessary to enact many parts of the Bill will be requirements on others.

There is also a two-way dialogue in this. Let us take, for example, the housing issue, which was debated in earlier clauses, and the need for appropriate housing stock and its reshaping to match the changes that are about to take place in housing benefit, and the underoccupancy rules in particular. This will mean that the Government will not have any control over the level of investment in housing stock, the shaping of it or even, in a sense, the policy that will drive it forward.

It is crucial that, in the one direction, if this policy is to be implemented, there is a successful negotiation, not only with Northern Ireland-about which we heard earlier-but with the other parts of the United Kingdom. However, if you look at it the other way round, you may find issues where the legislative competence may not exist at the moment to undertake all the tasks being given to the devolved Administrations. Has any consideration been given to the legislative consequences? It may mean consent Motions being passed in other Parliaments to give action to some of the work that is going on.

We have now a very complex arrangement in the United Kingdom. I have already declared my hand- I think that social security is one of the pieces of glue that holds the United Kingdom together-but to make it work we must work together, closely align ourselves and understand the competencies which are not with this Parliament. We need an update on where we are with the current level of negotiation with both Scotland and Wales, which I suspect is different at present.

Lord McKenzie of Luton: My Lords, we should thank the noble Lord, Lord Wigley, for reminding us of the scope there is in the Bill and the profound consequences that it may have, not only for the universal credit but for all the other parts that are before us today and will be before us in subsequent Committees. I thought the noble Lord, Lord German, was on the point of distinguishing between relevant Ministers and irrelevant Ministers, but he did not quite go there.

We saw today-I am afraid I did not see it all-some of the detailed work that has gone on in preparation for, certainly, a big part of what is in the Bill. However,

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the point has been made by both previous speakers that it is not only about DWP and England; there is lots of work for others to do, particularly local authorities, who are about to reel under the impact of the Localism Bill and all that Mr Pickles has sought to visit on them.

Questions were raised about new burdens and how they work. It is important that that is factored in and that there is fairness and equity in how these matters are rolled out.

I acknowledge receipt of the Low review. Unlike the noble Lord, Lord Wigley, I have not had a chance to read it yet or to quote from it, but it looks to be a particularly valuable document. I hope I have a chance to read it before we get to DLA later in the Bill.

Lord Freud: My Lords, I am also looking forward to reading the Low review but I have been listening with great intensity to everything said in this Committee today. Social security is a reserved matter, although it will clearly have a limited, tangential impact on areas of policy where the Welsh Assembly and Scottish Parliament have competence, the obvious examples being childcare and housing. It does not, however, include DLA, which was one of the issues raised by the noble Lord, Lord Wigley.

I can reassure noble Lords that we have held, and will continue to hold, regular discussions with Ministers in the devolved Administrations and their officials. We are committed to the smooth and successful implementation of universal credit. To achieve that we are working closely with devolved Administrations and relevant local authorities to help them identify and address the impact that the introduction of universal credit will have on any services that they deliver. We are doing so in line with devolution guidance. My department is continuing to work through the detailed design aspects of universal credit which will be covered in regulations. Throughout this process they will continue to have discussions with the devolved Administrations, as appropriate, on these provisions and on others in the Bill. I can assure the noble Lord, Lord Wigley, that whatever I am saying here is relevant to the whole of the Bill.

I am concerned that this amendment would introduce a new and unnecessary level of bureaucracy. My noble friend Lord German hinted at some of the problems that it would result in. In practice, that would hamper progress and potentially delay the introduction of universal credit, let alone other aspects of the Bill.

Lord Wigley: Can the Minister clarify how that bureaucracy comes about?

Lord Freud: The issue is that if there is an additional, formal process, requiring a formal level of discussion at a formal time before you can clear particular things, that is another element of delay to negotiate when we already have a huge number. We are on a very precise plan of implementation here. Those noble Lords who were able to see the presentation of how we are introducing and implementing universal credit will be aware of the importance of a smooth process. I am concerned to avoid delays due to artificial elements of bureaucracy.

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Our ongoing discussions with devolved Administrations are the best way to address any impact on devolved services and achieve the successful implementation of these reforms. With that reassurance, I beg the noble Lord to withdraw his amendment.

Lord Wigley: I am grateful to the Minister for his response. I am intrigued by the way in which this bureaucracy is going to be such an imposition. If there are meaningful, ongoing discussions with the Administrations in Cardiff and Edinburgh involving a two-way flow of discussion, after which there is either a meeting of minds or not, that is not an extra level of bureaucracy. If that is not happening and it would be an extra imposition, I would be very concerned because the reassurances we are getting would be insufficient.

Lord Freud: My Lords, let me make myself utterly clear. If we had a statutory duty to discuss and if a devolved Minister were, for any particular reason, unavailable-my noble friend Lord German made my point here-our progress could be slowed. That unavailability could, potentially, be deliberate. We do not want another problem to negotiate when we already have a formal set of agreements on how we relate to devolved Administrations. We are sticking to those and we are talking regularly and informally on how best to get this through.

5.15 pm

Lord Wigley: I note what the Minister says. He suggests that there could be some deliberate refusal to engage in such discussions. Does he seriously have examples of that happening that he could cite to the Committee, or is it something that he is imagining?

Lord Freud: My Lords, I could not reveal any confidences about the discussions that I have had with Ministers in devolved Administrations. Therefore, regrettably, I cannot answer that question.

Lord Wigley: I understand where the Minister is coming from. However, the point is that there may well be a difference of opinion between what is perceived as good public policy in Cardiff and Edinburgh and what is perceived as good public policy in his department under his Government. After all, they are different Governments of different political complexion, which will have different priorities. That is true of the current Government in Cardiff and the coalition Government who were there before them. The whole point is that we need some understanding on this.

Lord McAvoy: Is the noble Lord, Lord Wigley, perhaps interested in asking the Minister whether these confidential discussions are subject to freedom of information requests?

Lord Wigley: That would indeed be interesting. No doubt we will hear if that is the case. However, on this amendment I was also pressing for assurances-it may well be that the Minister was giving them in the words that he used-with regard to the application of the

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concordat. I assume from his words that the concordat-I quoted from paragraph 17-is fully applicable and will be in the context of these negotiations; and, likewise, that the assurances of "no surprises" that have been given to local government will also be applied. If there are any direct relationships between his department and local government in Wales, which there could be in the context of housing benefit because there is a direct relationship, will those assurances apply equally? I am sure that the Minister is about to nod that that is his understanding, but I should be grateful if that could be put in writing.

Lord Freud: I repeat my point: we are absolutely moving in line with devolution guidance. We have no intention of doing anything other than that.

Lord Wigley: I have probably got as far as I will get by rattling around this set of bones but this is clearly a matter of some concern. We will not know for certain until the Bill becomes an Act and how this works is turned into reality. However, I very much hope that if, in that reality, it transpires that significant additional costs are landing on local government in England or the devolved Administrations in Wales and Scotland, the Government will pick up the bill in the spirit of the concordat and the other devices that they have if it is their actions that are causing those additional costs. On that basis, I beg leave to withdraw the amendment.

Lord McKenzie of Luton: My Lords, I shall speak also to our other amendments in this group, Amendments 55G, 56B and 69ZA. These amendments relate to the desirability of making a greater number of regulations under the Bill subject to the affirmative resolution procedure to facilitate better scrutiny of any changes that affect claimants and future claimants of the benefits system. In particular, future attempts by regulation to define the meaning of the terms "disabled", "severely disabled" and "work" should be submitted to both Houses of Parliament for approval. There are several other amendments in this group, which I might speak or respond to after others have spoken to them. I beg to move.

Lord German: My Lords, I shall speak to the amendments in my name, Amendments 59, 61, 63, 64, 65, 66, 67, 68, 69, 70, 77, 96, 99, 101 and 106, and to whether Clause 47 should stand part of the Bill. It will not take a wizard to note that these recommendations are based on the report to this House of the Delegated Powers and Regulatory Reform Committee. Before I

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give a general perspective on why I have tabled these amendments and my response to individual amendments, I shall simply look at the rationale that runs through the Delegated Powers and Regulatory Reform Committee's reasoning for these recommendations.

The first thing it says-and I think we all agree with this-is that this is a detailed and complex piece of legislation and that it needs to make provision for as wide a range of personal circumstances as is practicable, but it has a perceived need for adaptability. That is fundamental. It comments that this is a significant revision of social security means-tested benefits since at least 1986. It also comments on the way in which there has to be an opportunity for subsequent amendment and for views on the way in which this is being implemented. Clearly, as we all know, this is a skeleton Bill, and the regulations put the flesh on the bones. That is why it is very important that we get the arrangements right, particularly bearing in mind those key principles that I have just outlined.

The Government have accepted some of the amendments, so I will not dwell on them. They have accepted Amendment 59. Amendment 63 proposes the removal of claimants subject to no work-related requirements. This was an issue that came up earlier this afternoon. This amendment removes the requirement from the affirmative procedure only for the first set of regulations and later puts it back into affirmative every time it occurs. I notice that the Government have not yet responded to this amendment, and I hope that they will deal later with the question of whether it should be affirmative throughout. It falls into the category where we may wish subsequent amendments to be dealt with by the affirmative process because they have such a substantial impact on the clients who fall under these no work-related requirements.

Similarly, there is the issue of hardship, and I have done the same thing there. I have taken that from being affirmative for the first occasion only, and in a later amendment I suggest that it should be wholly affirmative. Amendment 65 proposes that the basic conditions be subject to the affirmative procedure throughout. These basic conditions set out by Section 4 and the regulations beyond it specify certain circumstances in which a person has been treated as having accepted the claimant commitment. The basic conditions are laid out in Section 4(1). These are the bare bones of universal credit and should be subject to the affirmative procedure because they are part of the fundamental structure of the Bill. These basic conditions may well change. There will be a requirement for some flexibility, knowing how the system will pan out over time. As the people who are going to be affected by this will be the more vulnerable, it seems to me that we should have an affirmative resolution for those regulations throughout.

On Amendment 66, the Delegated Powers Committee-whose report I read very carefully-said that if the Government could convince it that the negative procedure would satisfy it, that would be sufficient. In their response, the Government said that they would seek to reassure the committee that the negative procedure would be sufficient. I wait to be convinced, as I suppose do many other noble Lords. I am grateful that the Government have changed from a

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negative to a first-time affirmative procedure, but the amendment questions whether that is significant. I believe that the powers are significant, and the Delegated Powers Committee worried about the restrictions put on claimants and about whether they would be suitable for differing personal circumstances. The Bill and the documents that we already have seem to allude to using these measures in a positive way-something that I support-suggesting that restrictions on types of work will allow claimants to look for work in sectors in which they are interested or for hours that are appropriate for them. Quite clearly, it is an area with significant and changeable circumstances. If it is the view that the negative procedure should be used for routine matters, then, when these policies proceed, there should be an affirmative process.